This article has been written by Saswata Roy pursuing the Diploma in M&A, Institutional Finance, and Investment Laws (PE and VC transactions) from LawSikho.

Introduction

Zomato is an Indian international restaurant aggregator and food delivery company founded by Deepinder Goyal and Pankaj Chaddah in 2008. Zomato is currently present in more than 22 countries. Recently Zomato went for Initial Public Offering for an amount of Rs. 9,375 crores. The IPO includes a fresh issuance of equity shares totaling Rs. 9,000 crores and Rs. 375 crores offered for sale from existing shareholders. In its lifetime, Zomato had gone into various M&A deals. In this article, we will discuss the acquisition of TechEagle by Zomato.

The journey of Zomato so far

Zomato was originally called Foodiebay when it was first started in 2008 as a restaurant directory/food discovery platform in the NCR region. Foodiebay was created so that a digital copy of a restaurant menu was available online and people who were going to eat at that restaurant would not have to ask for paper menus. As Foodiebay was growing popular with an increasing consumer base, it expanded to various cities. 

The founders of Foodiebay wanted the startup to be more than a food discovery platform. Keeping this vision in mind and to avoid a possible lawsuit from eBay over the use of the name ‘Foodiebay’, they changed the name to Zomato. Zomato started its food delivery service in 2015.

Zomato started expanding not only through India but through various countries. By 2012, Zomato had expanded its services to Sri Lanka, the United Arab Emirates, Qatar, South Africa, the United Kingdom, and the Philippines, and by 2013, it had expanded to New Zealand, Turkey, and Brazil. The expansion outside India continued and now Zomato has a presence in 22 countries outside India.

In 13 years of Zomato, it had gone through various M&A deals. The following table contains the complete list of acquisitions done by Zomato.

Name	Date	Reason
MenuMania (New Zealand)	July 2014	A strategic move to establish Zomato’s presence in the Pacific.
Obedovat (Slovakia)	August 2014	To build the largest resource of restaurant information in Slovakia.
Lunchtime (Czech Republic)	August 2014	To build the largest resource of restaurant information in the Czech Republic.
Gastronauci (Poland)	September 2014	Strategic Expansion in Europe.
Cibando (Italy)	December 2014	Establishing a presence in Italy.
Urbanspoon (US)	January 2015	Zomato’s Entry in the US. Also, Urbanspoon had a strong presence in UK, Australia, and Canada.
Mekanist (Turkey)	January 2015	Establishing a strong presence in Turkey and thereby increasing restaurant coverage to 50,000 across Turkey from about 27,500.
MapleGraph Solutions Private Limited (India)	April 2015	Acquiring cloud-based point-of-sale products for restaurants will help Zomato create its own Android-based POS system that uses custom hardware for a reliable and customizable product experience.
Nextable (US)	April 2015	To implement easy, online reservations in restaurants. With both MapleOS and Nextable, Zomato can now offer POS solutions, table management, and reservation system services to restaurant businesses.
Sparse Labs (India)	September 2016	Zomato acquired this logistics technology startup to improve the delivery experience.
Runnr (India)	September 2017	Zomato acquired this hyperlocal logistics startup to strengthen its delivery service.
Tonguestun Food Network Pvt Limited (India)	September 2018	To cater to a large corporate market.
TechEagle (India)	December 2018	To enable a drone-based delivery ecosystem in India.
Uber Eats India (India)	January 2020	To increase market share in India.
Fitso (India)	January 2021	Zomato’s strategy of diversifying its revenue streams beyond the core food delivery business and into sports and nutrition

 

TechEagle and its acquisition

TechEagle Innovations Private Limited is a company founded by IIT Kanpur alumni Vikram Singh which produces drones. TechEagle had been actively involved in the development of unmanned aerial vehicles, with an emphasis on custom-made drones that could carry a payload of up to 5 kg. 

On 5th December 2018, Zomato acquired TechEagle to start working on drone-based delivery of foods. With this acquisition, Zomato could create a hub-to-hub delivery network powered by hybrid multi-rotor drones. 

The reason behind the acquisition

• The idea of drone delivery is not new. Google, Amazon, Uber, as well as IBM, were already looking into drone deliveries. Amazon has even filed a patent for the in-flight recharging of drones while IBM had a patent for coffee delivery by drones based on one’s cognitive state. Back in 2018, similarly Uber also had its eye set on drone delivery of food. As was reported by the Wall Street Journal, Uber’s website was advertising for an operations executive who could help in making delivery drones functional within the next year and commercially operational in multiple markets by 2021. Once they had their fleet of drones, Uber could easily have an upper hand in food delivery. It has to be noted that UberEats was a competitor of Zomato in India at that time. With its fleet of drones, UberEats would be difficult to compete with.  
• Zomato was already looking to increase its delivery fleet on the ground. It had acquired Sparse Labs and Runner in 2016 and 2017 respectively to boost its food delivery and logistics network. Zomato already had 75,000 restaurant partners then and through its two acquisitions, it had good delivery services. Acquiring a drone-producing startup was the next logical step up keeping in mind the future of delivery.
• Drone delivery is the future of delivery. Purchasing or even producing drones is indeed quite expensive, however, one has to keep in mind the long-term picture. In the future, the cost of drones is bound to reduce with the arrival of better technology. Food delivery by drones would be far more efficient than food delivery by humans and even more cost-efficient in the future.

Food delivery by drones: a reality?

In 2014, a remote-controlled four-rotor drone was utilized by Francesco’s Pizzeria in Mumbai to send an order to a skyscraper 1.5 km away. They posted a video on YouTube which caught the attention of police authorities. Police authorities were not happy with this stunt as prior permission was required from civil aviation authorities and remote-controlled drones posed a threat to national security.

This was the first usage of drone delivery of food in India. In 2016, in New Zealand, Domino’s Pizza used a drone to deliver the Peri-Peri Chicken and Chicken and Cranberry pizzas.

In 2017, an Iceland company, AHA launched drone delivery of food in its country. AHA teamed up with Flytrex, an Israeli drone service company, and persuaded transport authorities of Iceland to let them start food delivery via drones across Elliðárvogur. The drones would be loaded with products and fly autonomously along a predetermined route, saving a significant amount of time. AHA delivers on behalf of both restaurants and shops; so, when a customer orders goods online via drones, the shops and restaurants would deliver the goods to AHA’s offices. Then a company employee would load the goods on a drone and dispatch the drone to the customer. The customer gets a notification about the drone delivery and can even track the progress of such delivery. When the drone reaches the destination, the customer has to enter a PIN into the app, which causes the drone to lower the package. 

Flytrex, in 2019, started testing food deliveries for restaurants via drones in Raleigh, North Carolina, where it was picking up the food and then lowering it at the point of delivery. Uber also received permission from the Federal Aviation Administration to test drone delivery in San Diego. However, Uber’s model was slightly different. It was using drones for only a part of delivery, where drones would carry the food from the restaurant to an UberEats delivery driver. From there the UberEats delivery driver will complete the last mile to hand-deliver the food to the customer. 

Drone regulation

Although drones were used in India primarily for cinematography and commercial purposes, there was no regulation confirming the legality of drones. The rest of the world had already moved forward in the drone business and law authorities had created rules and guidelines for using drones. India’s drone business could not attract investors due to the fear that the government might ban the use of drones in the coming future. A national policy on drones was much needed. The Ministry of Civil Aviation drafted Drone Regulation 1.0 which came into effect on 1st December 2018. 

Key features of drone regulation 1.0

• The Drone Regulation 1.0 classifies Remotely Piloted Aircraft Systems (often referred to as drones) into five categories: nano, micro, small, medium, and large.
• Except for nano drones and those held by the National Technical Research Organisation (NTRO), the ARC, and the Central Intelligence Agencies, all drones must be registered.
• Except for nano drones operating below 50 feet, micro drones operating below 200 feet, and drones owned by NTRO, ARC, and Central Intelligence Agencies, drone operators must obtain an Unmanned Aircraft Operator Permit.
• Except for nano drones, drones must have the following mandatory equipment: (a) GNSS (GPS), (b) Return-To-Home (RTH), (c) Anti-collision light, (d) ID-Plate, (e) Flight controller with flight data logging capability, and (f) RF-ID and SIM/ No-Permission No Takeoff (NPNT).
• Drones can be used only within visual line of sight, during daytime, and up to a maximum height of 400 feet.
• If drones must operate in restricted airspace, they must file a flight plan and acquire an Air Defence Clearance (ADC) / Flight Information Centre (FIC) number.
• Drones are not permitted to operate in some regions. These “No Drone Zones” include areas such as airports, near international borders, Vijay Chowk in Delhi, the State Secretariat Complex in state capitals, strategic locations/vital and military sites, and so on.
• Each flight will require users to request authorization to fly via a mobile app (with the exception of the micro category), and an automated mechanism will approve or deny the request instantly. Any drone that does not have a digital permit to fly will be unable to take off, preventing illegal flights and protecting the public. Unmanned traffic management (UTM) serves as a traffic controller and regulator in the drone airspace. Military and civilian air traffic controllers (ATCs) collaborate closely to ensure that drones stay on allowed flight paths.

Drone Regulation 2.0

Drone regulation 2.0 was released by the Ministry of Civil Aviation on January 15, 2019.

• It broadens the operational airspace for drones by enabling them to fly above the present 400-foot limit and beyond the visual line of sight.
• The policy aims to create separate airspace, known as the Drone Corridor, to keep commercial drone activities separate from manned aircraft. This will be made possible via a UTM system, which will be in charge of managing drone-induced traffic.
• It includes rules for expanded activities like flying outside visual line of sight, commercial freight delivery, and autonomous operations that do not require active human participation.
• It allows for the employment of algorithms to control a drone by removing the demand for a human remote pilot.

The Drone Rules, 2021

The Unmanned Aircraft System Rules (UAS Rules), 2021, were enacted by the Central Government and went into effect on March 12, 2021; however, after receiving constructive feedback from academia, industry, and other stakeholders, the Central Government plans to implement certain rules in supersession of the UAS Rules, 2021, in the exercise of the powers conferred by Sections 5, sub-section (2) of section 10 and sections 10A, 10B and 12A of the Aircraft Act, 1934 (22 of 1934). The deadline to submit public comments was August 5, 2021.

Certain key features of this draft include:

• The number of forms and amount of cost is being reduced. 
• Yellow zone reduced from 45 km to 12 km from the airport perimeter
• No flight authorization is required up to 400 feet in green zones and up to 200 feet in the area between 8 and 12 km from the airport boundary. 
• Drone operations by foreign-owned corporations registered in India are not restricted.
• For R&D entities, there is no necessity for a certificate of airworthiness, a unique identifying number, previous approval, or a remote pilot license.
• The weight limit for drones covered by the Drone Rules in 2021 has been increased from 300 kg to 500 kg. This will also apply to drone taxis.
• The maximum penalty under Drone Rules, 2021 reduced to INR 1 lakh

Registration of drone in India

A list of certified drones that can be registered and operated in India can be found here. Drones except for nano drones or those owned by NTRO, ARC, and Central Intelligence Agencies have to be registered via Digital Sky Portal. The Digital Sky Portal is an online platform that is part of the No Permission No Takeoff (NPNT) enforcement system.

Operators will get a Unique Identification Number (UIN) and an Unmanned Aircraft Operator’s Permit (UAOP) after completing the registration process. Operators will also need to file a flight plan 24 hrs prior to the flight. There are various specified zones for flying. While applying through the digital sky platform, the applicant will see three different color zones: Red Zone: no flying allowed, Yellow Zone (controlled airspace): permission required before flying, and Green Zone (uncontrolled airspace): automatic authorization.

Documents required for registration

All drones, except nano and micro drones operating in uncontrolled airspace, intending to operate in controlled airspace up to 400 feet (120 m) above ground level shall be equipped with the following additional equipment/capabilities:

• SSR transponder (Mode ‘C’ or ‘S’) or ADS-B OUT equipment
• Barometric equipment with capability for remote subscale setting
• Geo-fencing capability
• Detect and Avoid capability

Following is the list of Standard Operating Procedure to be furnished by an operator:

• Take-off/landing
• Collision avoidance
• Noise abatement
• Flight plan filing
• Local airspace restriction
• Right-of-way
• Communications
• RPA emergency including loss of C2 link
• Safe recovery of RPA through controlled airspace in case of RPA system failure precludes the ability to remain outside controlled airspace, etc.

Zomato and TechEagle parted ways

Zomato and TechEagle decided to go separate ways in June 2020. Both entities would now operate as separate individual entities. With the help of TechEagle, Zomato had built in-house capabilities to build and test drones. It also has successfully tested drone delivery in India. The official statement from Zomato regarding the deal falling apart was due to the reason that the goals of both the companies were no longer aligned. TechEagle has now opted to use drones to deliver contactless medical and essentials.

Conclusion

Even though TechEagle is no longer a part of Zomato, the Tech Eagle had already helped Zomato in building Zomato’s team for making and operating drones. With the new Drone Rules, 2021 coming in, and drone delivery seeing a rise in various parts of the world, it is evident that in the coming years that drone delivery of food in India will become the new normal.

It was reported in June 2021 that Swiggy will also start food delivery via drones. Food and medical goods will be delivered by drones, according to the food-delivery behemoth. Swiggy has teamed up with ANRA Technologies to distribute food by drone. ANRA Technologies has secured final permits from the Ministry of Defence (MoD), the Directorate General of Aviation (DGCA), and the Ministry of Civil Aviation to begin BVLOS trials.

Since Zomato already has a home-grown drone team, it will eventually get an upper hand in drone deliveries of food. 

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