Just Eat Takeaway Acquires GrubHub: Transforming Food Delivery
Updated: Sep 10
Boosted by a hungry 2020, food delivery giants Just Eat Takeaway (JET), Grubhub, Deliveroo, Uber, Delivery Hero, and Door Dash are facing up in a multi billion-dollar bid for the hearts and stomachs of consumers globally. One of the ongoing deals is JETs all-share acquisition of US-based GrubHub in a £5.75bn deal, fending off competition from Uber, and adding another acquisition to the menu of financial activity in the food-delivery since the pandemic began. The deal is expected to be completed by the end of 2021, having been signed off by the CMA in April 2020, and will create the largest food-delivery company outside of China. The acquisition is just one example of a larger trend: the consolidation of the food-delivery sector, in response to the surge in demand generated by the COVID-19 pandemic.
Just Eat Takeaway:
History: Formed by a merger in January 2020 between Just Eat (2001) and Takeaway (2000), two of the world’s most successful food delivery companies.
Sector: Online Food Delivery
CEO: Jiste Groen
Stock Price*: £79.84
Market Capitalisation*: £11.87bn
History: Originally founded to create an alternative to paper menus, and expanded into food delivery in 2014.
Sector: Online Food Delivery
CEO: Matt Maloney
Stock Price*: £52.92
Market Capitalisation*: £4.91bn
Collectively, these firms would be a powerhouse in the food-delivery sector, with strengths both in terms of revenue, and reach, relative to the other major players. JET's reach combined with Grubhub's largest and most comprehensive network of restaurant partners in existence globally are key motivators behind sealing this deal.
The 2020 M&A Menu:
Food-delivery is an intensely competitive and fast growing sector, with gross revenues expected to double again by 2025. Other major players include DoorDash, Uber’s own Uber Eats, and Deliveroo, each of which was in the news last year for attempting to capitalise on their explosive growth as the market is transformed by the pandemic.
DoorDash begun publicly trading on December 9th, and it’s share price jumped 86% over the first day alone, raising $3.4bn, and demonstrating investor appetite for the largest food-delivery firm in the US. DoorDash was arguably been the winner of 2020, quickly gaining a 50% of order value in October in the US, with revenues increasing almost fourfold over the year.
Uber Eats announced its $2.65bn merger with Postmates in July 2020, scheduled to finish by Q1 of 2021. Whilst Uber had originally planned to acquire GrubHub, it was forced to abandon this deal after receiving backlash form US antitrust officials. Despite this, Uber Eats has experienced similarly explosive growth, overtaking Uber Rides to become the largest part of Uber’s portfolio.
Deliveroo, keen to compete with the rapidly growing US and European firms, has received backing from Amazon, after the CMA approved a £440m investment in August last year. The funding will allow Deliveroo to compete in the increasingly consolidated market, able to take advantage of Amazon‘s vast and sophisticated international delivery network.
The Plat du Jour:
JET and Grub Hub are two major players in two different continents. JET currently has an 83% share of the UK market, whilst Grub Hub has roughly a third of the US market. This geographical disparity may provide the merger with the long-term synergies vital to compete in such a brutally competitive industry, since the gradual integration of the firms will generate an international presence rivalled only by Uber and Delivery Hero. Moreover, even though they lack the geographical overlap necessary to create substantial short-run cost savings, JET has a primary focus on sustainable growth and is keen to exploit the long-run advantages of the merger. Initially then, they plan to operate largely independently before integrating continuously over time to create an efficient transatlantic powerhouse.
So far, profits are extremely rare, in fact Deliveroo is yet to have a profitable year. Grub Hub and JET are two of the only profitable and efficient firms in the market, and they have a consistently positive EBITDA. This suggests that the short-term inertia and inefficiency that may arise in the merged company will not be significant enough to disrupt the explosive growth of the firms.
In the long run, the result will be a company built around four of the most profitable countries for food-delivery: the US, UK, Netherlands, and Germany. Additionally, the combined finance of the merged group provides greater potential to leverage investments, particularly in developing new technology that underlies the operation of food-delivery firms.
Despite the relatively contestable market, the oligopoly that has formed suggests that there are substantial synergies available to the biggest firms. One source of economies of scale is that an increased number of riders reduces average delivery time and allows more orders to be completed, as well as increasing the quality of the service provided by the merged group. Moreover, the homogeneity of the service provided by the major firms is only circumnavigated by aggressive marketing tactics, which is subject to substantial economies of scale, even in the immediate aftermath of the merger.
Therefore, whilst rapid, inorganic growth may be the only way to survive in this brutally competitive market, the JET-Grub Hub merger seems geared up to provide the most significant long run advantages through establishing an international network out of two of the markets most profitable firms.
An Easy Ride to Success?
Investors appear to have mixed feelings about the merger. JET‘s share price dropped 13% after the merger was announced, suggesting that investors are cautious of the even more intense nature of the US food-delivery market, and the extensive marketing fees it will necessitate.
DoorDash’s rapid growth is another cause for concern for JET, the relatively new firm has enjoyed recent success at the expense of Grub Hub’s growth, and may limit the extent to which the merged group is able to generate a transatlantic presence.
Perhaps the greatest risk to the survival of the merged group lies with JET, however. Jumping from merger to acquisition is as risky as it is expensive, and the company saw its total losses climb from €27million in the first half of 2019 to €158million in the first half of this year, despite an increase of 60 million more takeout orders.
JET has put the increasing losses down to the one-off charges related to the amalgamation of Just Eat and Takeaway, and the decision to acquire Grub Hub.
Whilst this is simply a short term cost, the rapid expansion may create more deeply rooted inefficiencies that allow costs to spiral out of control. Building a global company over the course of little more than a year creates an administrative nightmare, perhaps Mr Groen should be careful to make sure his eyes don't get bigger than his belly...
*as of 15:30 PM, 08/01/2021