Zomato Acquires Paytm’s Entertainment Ticketing Business

Zomato's Strategic Acquisition of Paytm's Entertainment Ticketing Business: A New Chapter in India's Going-Out Industry

In a significant move that underscores its ambition to dominate the "going-out" lifestyle segment, Zomato has announced the acquisition of Paytm's entertainment ticketing business. This transaction not only expands Zomato's portfolio but also marks a strategic step towards offering a comprehensive, one-stop solution for India's rapidly evolving entertainment and lifestyle needs.

Overview of the Acquisition

Zomato has signed definitive agreements to acquire Paytm’s entertainment ticketing business, which includes platforms such as Paytm Insider and TicketNew, along with offline box office sales. This business generated a Gross Order Value (GOV) of over INR 2,000 crore in FY24, growing by 29% year-over-year, and facilitated the sale of 78 million tickets to over 10 million unique customers. The acquisition is valued at INR 2,048 crore, subject to adjustments for cash and net working capital at closing. As part of the deal, approximately 280 employees from the ticketing business will join Zomato, ensuring continuity and expertise in the transition.

Strategic Rationale Behind the Acquisition

Zomato's CEO, Deepinder Goyal, emphasized that this acquisition is not a diversion from their core businesses of food delivery and quick commerce but a strategic extension of their existing going-out business. In FY24, Zomato’s going-out segment, which includes dining-out and event ticketing, generated a GOV of INR 3,225 crore, reflecting a 136% growth year-over-year. This acquisition will enable Zomato to scale its offerings and introduce new use cases, such as movie and sports ticketing, under a new app branded as "District."

The Vision for "District" App

The "District" app will serve as a dedicated platform for all going-out activities, including movie tickets, sports events, dining reservations, and weekend getaways. By consolidating these services under one brand, Zomato aims to enhance customer engagement and drive incremental demand across these use cases. The app will be designed to provide a seamless and integrated experience, making it the go-to platform for consumers looking to plan their entertainment and leisure activities.

Ensuring a Smooth Transition

During the transition period, the acquired businesses will continue to operate on their existing platforms, including the Paytm app, Paytm Insider, and TicketNew, for up to 12 months. Zomato plans to gradually migrate customers to the new District app while maintaining a button on the Zomato app to redirect users. The focus will be on ensuring a smooth discovery and booking experience for customers while safeguarding business continuity for merchants.

Financial Justification and Valuation

The acquisition is valued at approximately 1.0x the trailing Enterprise Value to FY24 GOV multiple, which Zomato believes is a fair valuation relative to comparable companies. KPMG provided a fair valuation report, and Kotak Mahindra Capital Co. Ltd. acted as the financial advisor, confirming the fairness of the valuation from a financial perspective.

Potential Risks and Success Factors

While mergers and acquisitions often come with challenges, Zomato is confident in its ability to transition customer traffic from the Paytm, Insider, and TicketNew apps to District. The company plans to leverage its execution capabilities, demonstrated in previous acquisitions like Uber Eats, to ensure a successful transition. Additionally, this acquisition represents a new territory for Zomato as it is the first major acquisition involving a team they are not closely familiar with, adding an element of uncertainty.

Future Outlook for the Going-Out Business

Zomato anticipates that its going-out business, bolstered by this acquisition, will reach a GOV of INR 10,000 crore by FY26. In the near term, the business is expected to remain near break-even on an Adjusted EBITDA basis. However, with continued growth and the introduction of new use cases, Zomato projects that this segment could achieve a 4-5% Adjusted EBITDA margin as a percentage of GOV in the medium to long term.

Expected Closing and Deal Structure

Zomato expects the transaction to close within this quarter, subject to the completion of all closing conditions. The deal involves the carve-out and transfer of Paytm's movies and events ticketing businesses to subsidiaries Orbgen Technologies Pvt Ltd and Wasteland Entertainment Pvt Ltd. Zomato will then acquire 100% stakes in these subsidiaries, making them wholly owned entities.

Conclusion

Zomato's acquisition of Paytm's entertainment ticketing business represents a strategic move to expand its presence in the going-out lifestyle segment. By introducing the District app, Zomato aims to create a unified platform for all entertainment and leisure activities, further solidifying its position as a leader in India's digital economy. With a clear vision and robust execution strategy, Zomato is well-positioned to capitalize on the growing demand for organized entertainment and lifestyle services in India.