Foodtech majors Swiggy and UberEats have called off their much hyped up acquisition talks, according to people familiar with matter. The high profile acquisitions talks collapsed as both companies failed to agree on number of contagious issues like financial terms and taxation clauses, sources have claimed. The collapse of acquisition talks has scuttled down the possibility of the biggest consolidation exercise in India’s nascent foodtech sector.
Economic Times, after citing unidentified sources, claims that Softbank’s plan to pump primary capital in Swiggy further complicated the acquisition talks. This complication obviously emerged because today SoftBank is the largest investor in Uber – the parent company of UberEats. Both Swiggy and Zomato have been chasing SoftBank for well over a year now to satisfy their appetite for growing capital.
On financial issues, Swiggy and UberEats seem to have collided on the valuation matter. This is hardly surprising given that ‘valuation’ is a contagious issue that is known for hampering acquisition talks. It is not known how much valuation UberEats vouched for, especially given that this acquisition was supposed to be a swap deal. UberEats was reportedly vying for at least 10% stake in Swiggy.
Uber had struck a successful swap deal with Southeast ride hailing major Grab last year, when it decided to exit the loss making market.
U.S ride-hailing giant’s wish for respectable valuation for its sister company doesn’t appear to be very unrealistic. This despite the fact that it is little desperate to gain a favorable financial footing ahead of its much anticipated IPO. However, the SoftBank backed giant is aware that this desperation can cause a huge embarrassment in the global investment community if it agrees for an awfully lower valuation. An embarrassment that can adversely affect its IPO.
If valuation played the spoilsport then ‘complicated taxation’ played as much important role in breaking down the acquisition talks. UberEats’ controlling company is registered in the Netherlands. This would not have been a major problem if India and Netherland hadn’t signed a special taxation treaty. The treaty potentially exempts UberEats from GST and dual taxation, which actually means that the deal would have to undergo structural change to make it more viable for Swiggy.