The coronavirus is changing the lifestyle of many Americans profoundly. As more people work from home, learn online and engage in social distancing, they are buying products and services that cater to their emerging needs. As a result, dealmaking is surging in some sectors, including food delivery.
In our November/December cover story, Mergers & Acquisitions identifies and explores five sectors receiving strong interest from strategic buyers and private equity firms: exercise equipment, cleaning products, food delivery, pets and mobile homes.
Here’s our look at the trends driving M&A in food delivery.
What’s for Dinner?
With consumers being quarantined and indoor dining being closed, food and grocery delivery services have soared. One company that became particularly popular is Instacart, a grocery delivery service company whose valuation hit $13.7 billion in 2020 in a funding round after its popularity exploded from an influx of people staying at home under pandemic lockdowns. The new value matches the price Amazon.com Inc. (Nasdaq: AMZN) paid to acquire Whole Foods in 2017 and is a significant jump from Instacart’s valuation $7.9 billion in 2018. Instacart raised $225 million in the funding round. DST Global and General Catalyst joined existing investor D1 Capital Partners in the round.
In September, Instacart announced a partnership with 7-Eleven, one of the largest convenience store chains. “Whether it’s a late-night snack or batteries for the TV remote, by partnering with 7-Eleven we’re able to help even more consumers get exactly what they need, when they want it, from the retailer they love,” says Nilam Ganenthiran, president of Instacart.
It is not just Instacart that is attracting investors. Uber Technologies Inc. (NYSE: UBER) is buying Postmates Inc. for $2.65 billion. The takeover would help Uber gain ground against DoorDash Inc., the current market leader in U.S. food delivery. While Postmates hasn’t kept pace with DoorDash, it maintains a strong position in Los Angeles and the American Southwest, both of which could be valuable to Uber Eats.
“Uber and Postmates have long shared a belief that platforms like ours can power much more than just food delivery—they can be a hugely important part of local commerce and communities, all the more important during crises like Covid-19. As more people and more restaurants have come to use our services,” says Uber CEO Dara Khosrowshahi.
Consolidation has already been taking place in the food delivery sector, as consumers seek more convenient options. Competition in the industry has heated up since the pandemic started with more people staying home and avoiding crowded indoor places like restaurants.
Just Eat Takeaway.com NV is buying Grubhub Inc. (NYSE: GRUB) for $7.3 billion, in a deal that creates one of the world’s largest meal-delivery companies as the coronavirus pandemic drives a surge in orders. The deal sidelines Uber, which had been in acquisition talks with Grubhub for months, according to Bloomberg News. Food delivery is one of the few parts of the economy to benefit from the spread of the coronavirus in 2020, thanks to people spending more time at home. Profit margins are tight or nonexistent in food delivery due to intense competition to sign the most popular restaurants to delivery agreements and add customers. Analysts have long said the unprofitable model in food delivery is unsustainable and to expect consolidation. Grubhub will launch Just Eat Takeaway into the U.S. market, broadening its already global reach that includes Australia, Brazil, Canada and its home base in Europe. Jitse Groen, the Dutch billionaire who created Takeaway in 2000 in his university dorm room, has been looking to expand aggressively over the last year, reports Bloomberg.
“We intend to accelerate our mission to be the fastest, best and most rewarding way to order food from your favorite local restaurants in North America and around the world. We could not be more excited,” says Grubhub CEO Matt Maloney.
For more on Mergers & Acquisitions’ The New Consumer cover story, see: