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Amazon has shown interest in acquiring Swiggy's quick commerce business, Instamart, though no official offer has been made. Preliminary discussions indicate that the transaction may be complicated due to its complexity.
Amazon India has reportedly reached out to Swiggy, which is preparing for its IPO, about a possible deal involving its quick commerce division, Instamart. Sources familiar with the matter indicate that Amazon is eyeing a stake through the ongoing pre-IPO placement or may even consider a buyout proposal for Instamart. However, initial talks suggest that the complexity of the deal's structure makes its completion unlikely. Currently, no official offer has been made.
Swiggy's SEBI Filing and Potential Deal Challenges
Swiggy has recently confidentially filed draft documents with SEBI for a substantial Rs 10,414 crore public offering.
Complications in Potential Transactions
Early discussions regarding a deal might not lead to a transaction due to the complex structure involved. According to sources cited by the financial daily, Swiggy is not inclined to sell just its quick commerce business, while Amazon is not interested in Swiggy’s food delivery segment, which is experiencing slower growth.
Amazon’s Interest and Obstacles
The report mentions that Amazon has shown interest in either acquiring a stake in the pre-IPO placement or proposing a buyout for Instamart. However, the person familiar with the matter notes that several obstacles are currently hindering progress.
According to the report, it is stated that "Swiggy is unlikely to sell just its quick commerce business, and Amazon is unlikely to be interested in the food delivery sector where growth is beginning to plateau." It is also noted that acquiring the entire company, valued at $10-12 billion, would be prohibitively expensive for Amazon, which typically does not engage in acquiring minority stakes.
The report highlights that early discussions have not suggested a strong likelihood of success for the transaction in its current form. The complex nature of the deal, coupled with Swiggy's reluctance to part with just its quick commerce division and Amazon's disinterest in the food delivery market, has dampened prospects. Additionally, Amazon's general reluctance to invest in minority stakes makes the proposed deal, valued at $10-12 billion, too costly for the e-commerce giant.
Amazon's Quick Commerce Initiative and Swiggy's Strategic Moves
Amazon's India team has been diligently working on launching its own quick commerce initiative for several months. However, the establishment of a separate vertical for this service will require global clearance, as Amazon currently does not offer quick commerce in any other global markets.
In the competitive landscape, Bengaluru-based Swiggy is expected to price itself at a discount compared to its rival Zomato. As of the closing BSE markets on July 19, Zomato's market capitalization stood at Rs 1.9 lakh crore.
Reports indicate that acquiring Swiggy in its entirety could be prohibitively expensive, with an estimated cost between $10-12 billion. Additionally, Amazon traditionally does not invest in minority stakes, which adds to the complexity.
Amazon's interest in Swiggy Instamart coincides with its ongoing efforts to develop its own quick commerce initiative. This move necessitates global clearance and the creation of a new vertical, given that Amazon does not currently provide this service in any other market worldwide.
Swiggy, on the other hand, is aiming to decrease the stake of one of its long-standing investors, Prosus. Currently holding a 33 percent share in the company, Prosus is looking to reduce its ownership to below 26 percent prior to the IPO, as it does not want to be classified as a promoter.
In April of this year, Swiggy submitted its draft red herring prospectus (DRHP) for an initial public offering (IPO) to the Securities and Exchange Board of India (SEBI) through a confidential filing process. Recently, the company launched a $65 million liquidity program for employee stock ownership plans (ESOPs).
Currently, Amazon does not offer delivery services in any global markets. If Amazon plans to introduce its own delivery services, it will require global approval to do so. Additionally, a recent report reveals that Flipkart had explored a similar deal with Swiggy. However, the discussions did not result in an agreement due to differences in valuation between the two companies.