BigBasket restarts talks with smaller rival Grofers for merger

Grocery startups BigBasket and Grofers have revived talks for a merger as their investors Alibaba and SoftBank look to join hands, ahead of a potentially costly market share battle with Amazon and Walmart-owned Flipkart to dominate India’s online grocery market, three people familiar with the development said.

The proposed deal involves BigBasket acquiring its smaller rival, the people said on condition of anonymity.

If the deal goes through, the merged entity could raise $250 million from China’s Alibaba Group Holding Ltd, one of the three people said. Japan’s SoftBank Group Corp. and other investors could pour more capital into that entity, the other two people said.

Grofers and Big Basket declined to comment. SoftBank and Alibaba did not respond to emailed queries.

A merger of BigBasket and Grofers makes sense for their investors, said analysts. The online grocery business is a top priority for Walmart and Amazon and they are expected to pump in hundreds of millions of dollars to expand their fledgling grocery operations. Rather than raising capital separately, BigBasket and Grofers would be better off as a merged entity, said the analysts.

Bengaluru-based Big Basket (run by Supermarket Grocery Supplies Pvt. Ltd) had in early 2017 held talks with Gurgaonbased Grofers India Pvt. Ltd for a potential buyout as the latter was struggling to raise funds.

Grofers, however, managed to turn around its business by the start of this year through cost cuts, reducing operations in some markets and removing unprofitable products.

The exercise was rewarded, with the firm raising $65 million in March from existing investors, led by SoftBank and Tiger Global. The fresh capital was at a discount to the $400 million valuation Grofers had commanded in November 2015 while raising raised $120 million from the same investors.

While the funds are considered enough to last up to 8-10 months, Grofers has hit the market to raise an additional $120-150 million, a fourth person said on condition of anonymity.

To be sure, the talks with BigBasket are at a nascent stage and Grofers continues to scout for new investors. It’s not clear who will run the merged entity if the deal is finalized.

Grofers has a term-sheet from a strategic investor, which is conducting a due diligence, said the fourth person mentioned above. Mint could not ascertain details of the new investor or the investment being discussed.