Delivery Hero has agreed to sell its German operations to Dutch competitor Takeaway.com for €930 million. Takeaway.com will pay €508 million in cash. The remainder will be paid in new shares, giving Delivery Hero an 18% stake in Takeaway.com. Delivery Hero will also get to appoint an independent member to the supervisory board of its former rival. The two companies continue to compete in Eastern Europe.
More consolidation could soon happen in Romania, Bulgaria, France and Spain, judging by their market fragmentation.
Why the deal makes sense for both
Competition between the two companies in Germany had been fierce for years. Takeaway.com had the winning hand: it was growing more than twice as fast in Germany. It benefitted from having one unified German brand with Lieferando, resulting in more efficient marketing (lower cost per acquisition). This means it could out-spend its rival on (mostly offline) marketing. Meanwhile, Delivery Hero had multiple brands to manage (Lieferheld, Pizza.de, and Foodora). In food delivery, with relatively small baskets, each basis point counts.
The deal gives undisputed market leadership to Takeaway.com, which should position it for profitability within a shorter time-frame. As the below illustration shows, the delivery model requires some level of market concentration to be profitable.
The market’s reaction
Markets had been hoping for this deal to happen. Delivery Hero is up 6% and Takeaway.com up 28% (!) at the time of writing this, on Monday 24 December. Clearly, the deal vindicates Takeaway.com as the winner in Germany.
Takeaway.com transforms from being a winner in small-ish markets, to a dominant player in Europe. A huge part of its ~€2.5 billion value had come from its highly profitable leadership position in the Netherlands, a medium sized market. Now the company might also become profitable in Europe’s second biggest market. And German online penetration is still relatively low, so there’s plenty of room to grow. In Poland the company has a good position and plenty of growth potential too.
A slam dunk for Takeaway.com then? Not yet. Now it has a large, complex and still lossmaking operation in Germany to focus on. Integration of four different brands will consume management’s attention for a while. It helps that Delivery Hero Germany was already planning to break-even in 2019.
What will the regulators think of this deal? Bloomberg Columnist Alex Webb has an interesting angle to this, including the fact that online delivery is still only a fraction of overall food consumption (based on Dealroom.co data).
The new Delivery Hero
Meanwhile, Delivery Hero is applauded for its decision to cut its losses and focus on winning markets: ~80% of Delivery Hero’s GMV will now come from markets where it has a #1 position. Its projected growth will increase from 45% to about 50% YoY growth for 2019E. The company’s European businesses will shrink from €250 million to about €100 million in 2018E (mainly Nordics and Eastern Europe). MENA, its most profitable and fastest growing market, will now also become its largest with €260 million revenues in 2018.
Cash available will swell to €1 billion, which the company intends to invest in growth markets. The new investment plan will therefore negatively impact EBITDA by €250 million in 2019. Delivery Hero expects adjusted EBITDA between negative EUR270 and EUR320 million after the additional investments. The company expects Europe to reach breakeven during the second half of 2019 and MENA to generate EUR70 million of adjusted EBITDA in 2019 after the additional investments.
What’s next in online delivery?
The delivery landscape is changing rapidly. The addressable markets keep expanding as more restaurants adapt. Investment data into new food tech startups is mind-boggling and led by massive Asian rounds.
The global leaders include UberEats (rumoured $20 billion valuation), Delivery Hero ($6 billion valuation), Just Eat ($4-5 billion), Deliveroo ($3 billion), Takeaway.com ($2.5 billion) and Glovo (~$500 million).
As of Q3 2018, UberEats was doing $8 billion in run-rate GMV and growing 150% YoY (faster than Deliveroo’s ~100% growth). Glovo has demonstrated that it is possible to challenge already established markets, and is making headway with groceries.
Asia is dominated by strong local players. In Asia, the key players include Ele.me (~$10 billion), Go-jek ($9 billion), Swiggy ($3 billion), and diversified internet company Meituan Daiping ($50 billion).
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