By Aron Adamski, BSc Economics @LSE
OVERVIEW OF THE DEAL
- Acquirer: Just Eat Takeaway.com
- Target: Grubhub Inc.
- Estimated Value: $7.3B
- Financing: All-stock
- Announcement Date: 10/06/2020
- Acquirer Advisors: BofA Securities, Goldman Sachs International
- Target Advisors: Evercore, Centreview Partners
Europe’s Just Eat Takeaway.com (JET) has agreed to buy American Grubhub in an all-stock transaction worth about $7.3 billion, a move the companies say will create the world’s largest online food-delivery company outside of China in terms of revenue.
Key terms of the deal:
- The deal values Grubhub’s shares at $75.15 apiece, a 27% premium to their Wednesday (10/06/2020) close
- Grubhub shareholders will be entitled to receive 0.671 of JET ordinary shares in exchange for each Grubhub share
- On completion, Matt Maloney, CEO and founder of Grubhub, will join the JET Management Board and will lead the group’s businesses across North America
- The combined entity will be headquartered in both Amsterdam and Chicago
The massive tie-up comes as social distancing restrictions across the world begin to ease, a shift that will test whether an increase in the use of food-delivery apps during the pandemic will persist. It also comes less than two months after Just Eat and Takeaway.com won UK regulatory approval for a merger of the two companies worth £6.2billion.
Reports had surfaced last month that Uber was in pursuit of Grubhub, leading to antitrust concerns because of the two companies’ relative dominance of the US market. Now, regulators will instead have a different deal to assess.
COMPANY DETAILS (Just Eat Takeaway.com)
JET is a leading global online food delivery marketplace focused on connecting consumers and restaurants through its platforms. JET mainly collaborates with delivery restaurants, but it also provides proprietary restaurant delivery services for restaurants that do not deliver themselves. With over 155,000 connected restaurants, JET offers consumers a wide variety of food choice.
- Founded in: 2000
- Headquartered in: Amsterdam, Netherlands
- CEO: Jitse Groen
- Number of Employees: 5,423
- Market Cap: £11.4B
- EV: £11.6B
- LTM Revenue: £373.9m
- LTM EBITDA: £8.27m
- LTM EV/Revenue: 31.02x
- LTM EV/EBITDA: 1402.66x
JET experienced a 41% growth in orders in April and May 2020 as people stuck at home ordered more takeaways. The highest growth in orders was recorded in Canada (97%), followed by Germany (48%) and Netherlands (38%).
COMPANY DETAILS (Grubhub)
Grubhub is a leading online and mobile food-ordering and delivery marketplace with the largest and most comprehensive network of restaurant partners in the US. It features nearly 300,000 restaurants in over 4,000 US cities. Moreover, their portfolio of brands includes: Grubhub, Seamless, LevelUp, AllMenus and MenuPages.
- Founded in: 2004
- Headquartered in: Chicago, United States
- CEO: Matt Maloney
- Number of Employees: 2,714
- Market Cap: $5.43B
- EV: $5.63B
- LTM Revenue: $1.35B
- LTM EBITDA: $41.4m
- LTM EV/Revenue: 4.18x
- LTM EV/EBITDA: 136x
Grubhub’s orders were +28% in April and May 2020 compared to April and May of last year. Also, gross food sales, which is the primary driver of revenue, was +59% in April and May 2020 compared to April and May of last year. The larger increase in gross food sales is primarily driven by the fact that average order sizes through Grubhub increased and remain high.
STRATEGIC RATIONALE
Market consolidation
Together, JET and Grubhub process over 590 million orders annually, corresponding to around £12.2B in gross merchandise volume. Thus, the combined group will become the world’s largest food delivery company, outside of China, measured by GMV and revenue.
Global growth
The combined group will operate within four of the world’s largest profit pools in online food delivery: US, UK, Netherlands and Germany, increasing the group’s ability to deploy capital and resources, in particular in technology, marketing and restaurant delivery services, to strengthen its competitive positions in all its markets.
US growth
Due to Grubhub’s 28% market share in the US, JET will expand its footprint in the US, a market that is expected to grow by 5.1% CAGR between 2020–24.
Moreover, the US market is competitive and fragmented across local regions and cities and Grubhub’s differentiated offering provides it with unique advantages given its large marketplace business, its Seamless corporate business, its large geographic footprint and extensive customer and restaurant relationships. The enhanced scale and leading position of the combined group provide them with an opportunity to combine the best practices from both JET and Grubhub and expand their offering to both restaurant partners and consumers, growing their North American market share further.
RISKS AND UNCERTAINTIES
Little cost synergies
Given the lack of geographic overlap there is little scope for cost-cutting savings through channels such as: centralisation of orders, improved procurement processes, and unification of brands. Grubhub only operates in the US. JET has no presence there, though it is the biggest delivery company in Canada (with its Just Eat and SkipTheDishes businesses).
Limited network effects
Again, given the lack of geographic overlap there is little scope for a client base of one company helping to grow another.
Grubhub’s doubtful performance
Grubhub has seen its market share and margins eroded in recent years by its main competitors: Uber Eats, DoorDash and Postmates.
Also, EBITDA margin, once as high as 26% fell to 6.1% in 2019. Grubhub also recorded a net loss of $18.6m in 2019 and reported a further loss of $33m in the Q1 2020.
In this context, a deal may ultimately make more sense for Grubhub than Just Eat Takeaway.
