Introduction:
On June 10th 2020, Europe’s Just Eat Takeaway.com acquired US-based Grubhub for $7.3bn, in a deal that creates one of the largest food delivery companies in the world.
Industry Overview:
The Online Food Delivery refers to the mechanism of ordering and delivering food to customers through different websites and applications by using computers or smartphones. This industry is becoming more and more popular among both customers and food service providers as they both benefit from it. On the one hand, the main benefits for consumers include the many different options of food items available online and the ease of receiving the food items directly at their doorsteps. On the other hand, the main benefits for food service providers are the potential for increased revenue, reduced labour costs due to the fact that the staff is not tied up on the phone or at the counter to receive orders and reduced errors. Moreover, online food delivery offers food service providers customer data that can be used for marketing activities such as offers during off-peak hours and offers for specific consumers segments.
The trend of online food ordering has been increasing steadily over the last years. The growth in smartphone penetration and internet access offers the opportunity to order food online efficiently and rapidly. The online food delivery market is expected to reach US$ 164.5 Billion by 2024, highlighting a CAGR of 11.4% during 2019-2024.
The Covid-19 pandemic along with social distancing measures have strongly impacted customer behaviour, creating structural changes to the Food and Beverage industry that could last for a long time. For instance, Working-from-home policies may enhance online food delivery service consumption, impacting how, when and how often customers spend on restaurant food. Working-from-home policy has grown to approximately 50% during the crisis vs. 15% before, according to the U.S. Bureau of Labor Statistics. According to Morgan Stanley estimates, approximately three years of customer spend is being pulled forward due to Covid-19, led by accelerated growth from delivery platforms.
Companies’ Overview:
Target: GrubHub Inc (NYSE: GRUB)
Founded in 2004 and headquartered in Chicago, Illinois, GrubHub is an American online food delivery platform that connects diners with local restaurants. It currently has 24 million active users and features more than 300,000 businesses.
GrubHub’s portfolio currently includes five different brands, among which Seamless, founded in 1999 as one of the first business to provide companies with a web-based system for ordering food from restaurants and caterers, and merged with GrubHub in 2013. GrubHub was listed in April 2014 on the New York Stock Exchange and currently has a market capitalization of US$6.6bn.
In May 2020, Uber announced its intentions to approach GrubHub with a takeover offer, a move that immediately attracted antitrust scrutiny as the combined entity would probably have surpassed in size the market leader DoorDash. Uber decided to pass on the opportunity less than a month after the announcement.
Bidder: Just Eat Takeaway.com N.V. (AMS: TKWY)
Currently the largest food delivery platform outside China, Just Eat Takeaway.com was recently formed after the acquisition of Just Eat by Takeaway.com (transaction details can be found here). The combined entity has a market capitalization of €13.2bn.
The company, headquartered in Amsterdam, connects consumers to restaurants (over 155,000 businesses) through its online platform providing them with a wide variety of food choice. Just Eat Takeaway.com mainly collaborates with restaurants that already offer in-house delivery but it also provides its proprietary delivery services for those that do not deliver themselves.
Just Eat Takeaway.com has operations in most of Europe, the UK, Israel, Canada, Mexico, Brazil, Australia and New Zealand.
Deal rationale:
Just Eat Takeaway.com is particularly well positioned in the UK, Germany and the Netherlands. Grubhub on the other hand boasts an especially strong market share in the US, with estimates ranging from 20% to 25%. The acquisition of Grubhub will create the world’s largest food delivery business outside China and hence presents an important step towards global influence for Just Eat Takeaway.com.
Earlier this year, a move for an acquisition of Grubhub by one of Just Eat Takeaway.com’s biggest competitors – Uber – fell through over substantial valuation differences and regulatory concerns. The combined company would have made up for roughly 55% of the entire US food delivery market which did not sit well with supervisory authorities. It was the talk of this deal and its subsequent failure that prompted Just Eat Takeaway to make its own offer. This acquisition was less susceptible to regulatory concerns since Grubhub and Just Eat Takeaway.com hardly overlap in their geographic positioning and hence do not threaten to immediately reduce competition by combining their companies.
In the last couple of years, the two companies have distinguished themselves from most other food delivery companies through constantly positive EBIDTA, and the combined group will become the most profitable player in the industry. In the short- and medium-run, the focus will lie on further improving margins. The firms are also believed to be a good cultural fit because a lot of their core values overlap. They both emphasise high-quality service and have not been involved in any major scandals, leading to good public image.
Especially in the US market, Grubhub’s main rivals DoorDash and Uber have been heavily diluting the company’s market share so far by means of a low-fees strategy. It is expected that by making use of Just Eat Takeaway.com’s scope, knowhow and network, the combined group will be able to lower Grubhub’s currently rather high delivery fees and become more competitive in this regard. The tendency towards consolidation in the food delivery industry will most probably be amplified by the latest developments and motivate the big players, amongst which Just Eat Takeaway.com, to stay on the lookout for further opportunities for horizontal integration in the near future.
Deal Structure:
In the final structure of the transaction, Just Eat Takeaway.com acquired Grubhub with an all-share offer, through which Grubhub shareholders own 30% and Just Eat Takeaway own 70% of the combined group. The transaction is expected to be completed in the first half of 2021 and has been cleared by the regulatory authorities (Competition and Markets Authority in the UK and the Committee on Foreign Investment in the United States).
Grubhub shareholders will receive American depositary receipts[1] worth 0.671 Just Eat Takeaway.com for each share of Grubhub, representing an implied value of $75.15 per Grubhub share. This represents a 60% premium to the shares’ value in May, prior to deal talks with Uber. This all-share offer values Grubhub at a total of $7.3bn.
[1]ADRs: ADRs offer U.S. investors a way to purchase stock in overseas companies that would not be available otherwise. Foreign firms also benefit, as ADRs enable them to attract American investors and capital without the hassle and expense of listing on U.S. stock exchanges.
Grubhub was advised by Evercore and Centerview Partners. Just Eat Takeaway.com was advised by Goldman Sachs and Bank of America Merrill Lynch.
Below is a visual representation of Grubhub’s share price in 2020. Following the spread of COVID-19, Grubhub’s stock rose on hopes of increased activity. On May 11th 2020, when rumours regarding Uber’s bid for Grubhub’s business spread, Grubhub’s share price increased by more than 20% in one single day. On June 10th 2020, when a final agreement was reached with Just Eat Takeaway.com, shares only surged by 2%, as a takeover had already been priced in for several months. Overall, Grubhub’s performance in 2020 has been very impressive, as COVID-19 and an acquisition came to boost its share price by almost 60% from its March 2020 low.
Sources: FT.com, Yahoo Finance, Investopedia, Forbes, Just Eat Takeaway.com Press Release, Bloomberg, NY Times, VentureBeat, TechCrunch, MergerSight, Grubhub, The Verge, Morgan Stanley website
To contact the authors:
Bocconi Students M&A Circle 
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