Introduction:
On the 2nd of February 2021, it was announced that Uber Technologies Inc agreed to acquire Drizly Inc for $1.1 billion. The deal is expected to be completed within the first half of 2021 after regulatory approval and other closing conditions. Consequently, Drizly will eventually be integrated into Uber Eats.
Companies’ overview:
Target: Drizly
Headquartered in Boston, Drizly is the largest online liquor marketplace in North America. The firm, founded in 2012, has raised an estimated VC funding of around $120 million, and it currently employs around 200-300 people in the US. Referred to as the “Amazon for liquor” by some, Drizly claimed to have more than 300% growth in the past year with an estimated revenue of $60m.
Drizly relies on a “three-tier” business model wherein producers sell to distributors, who in turn sell to customers. In each of the 1400+ cities in which it operates across the USA and Canada, the company partners with local retailers to bring their inventory to customers. It offers a wide selection of alcoholic beverages like wines, beer, gin, vodka, and whiskey, enabling customers to order alcoholic drinks delivered within 60 minutes.
The service is provided through its website as well as a smartphone app available on iOS and Android platforms. Users place their order through the app or website, and retail partners fulfil the order, process the transaction, and execute delivery. Drizly does not take a cut of the orders but instead charges the liquor and wine stores a monthly fee to use its order fulfilment software.
Drizly is supported by institutional investors and partners with retailers to bring their offering online and assist them in reaching new consumers, gaining key insights into markets and buyers, and diversifying their business to boost sales. The company is also partnered with the Wine and Spirits Wholesalers of America.
Bidder: Uber
Founded in March 2009 and headquartered in San Francisco, California, Uber Technologies Inc is an American technology company that provides services including food delivery, ridesharing, courier, freight-transportation and electric bicycle and motorized scooter rental through a partnership with Lime.
Uber operates in 69 countries and is estimated to have over 78 million active monthly users worldwide. In the United States, the company has a 67% market share for ridesharing and a 24% market share for food delivery. Uber has a market cap of $112.246 billion, with over 26,000 employees and earnings of $14.147 billion. However, because of the Covid-19 pandemic, Uber announced a loss of $5.8 billion in November 2020.
Uber generates most of its revenue through the ridesharing business. The firm does not provide transportation services but instead determines fees and terms on which independent drivers transport customers, taking a share of the ride fare. Uber adopts a dynamic pricing model, with fares fluctuating depending on local supply and demand at the time of service.
The UberEATS segment offers customers the ability to search or discover local restaurants and order meals, with the option to pick-up at the restaurant or have them delivered. Meals are delivered by couriers by cars, scooters, bikes, or foot. The freight segment on the other hand connects carriers with shippers on the company’s platform and enables carriers to obtain upfront, transparent pricing with the ability to book shipments.
In the recent past, Uber has been quite active within the M&A landscape, with a $3.1 billion acquisition of Dubai-based ridesharing company Careem in January 2020, as well as a $2.65 billion all stock acquisition of American food delivery company Postmates in December 2020.
Industry overview:
Unlike most industries whose performance drastically declined due to the ongoing Covid-19 pandemic, the alcoholic drinks and beverages sector has developed alternative sources of growth. Despite the extremely tough measures, such as the shutting down of bars and nightclubs, the alcohol industry still managed to limit the impact of the health emergency. The overwhelming development of e-commerce went hand in hand with the increasing importance of online alcohol retail channels across the globe.
The International Wines and Spirits Record (IWSR) reported that the alcohol e-commerce value grew by 40% in 2020 across 10 core markets (Australia, Brazil, China, France, Germany, Italy, Japan, Spain, UK, and the US). Moreover, e-commerce alcohol sales are expected to keep on increasing with an average annual growth of nearly 45% in value until 2024.
With forced lockdowns and the transition of life at home, consumers became increasingly comfortable with purchasing alcohol online. According to IWSR data, the US showed that 44% of alcohol e-shoppers started just in 2020 while only 19% had started in 2019.
These American consumption pattern changes constitute additional evidence supporting the dramatic acceleration of the industry’s growth in the US. The country is on track to overtake the current market leader in online alcohol sales. Indeed, China has by far been the world’s largest alcohol e-commerce market, with its market value in 2018 and 2019 being twice and thrice as large as in the US respectively. However, during 2020, alcohol e-commerce sales rose by around 80% in value, the equivalent of three to five years of normal development which is a trend that is expected to continue rising.
Covid-19 had a drastic impact on most industries but also increased the importance of others; e-commerce alcohol is one of them. Its undeniable value growth paired with consumers forced to adopt e-commerce as a fundamental part of life create new opportunities for retailers and brand owners who are now heavily investing in the sector.
Deal Rationale:
With people staying at home amid coronavirus regulations, Uber’s gross booking and revenues from the ride-sharing segment dropped 53% each in the third quarter of 2020. As a response, Uber has been diversifying into profitable businesses during the pandemic. Notably, Uber has continued to expand into the food delivery industry, whose revenues have skyrocketed by 100% year over year to $1,451 million, by acquiring a food delivery service Postmates and a grocery delivery service Cornershop.
The acquisition of Drizly goes hand in hand with Uber’s efforts to reshape their competitive scope from ridesharing to delivery. Uber had previously attempted to enter the alcohol market, but they were faced with regulatory issues in certain states. Acquiring Drizly is an exceptional way to quickly implement alcohol on the Uber Eats platform without having to risk excessive capital and adaptation issues. The target provides an established and reliable service, thus expanding and diversifying Uber’s delivery portfolio. Additionally, offering alcoholic beverages on Uber Eats creates more options for consumers and consequently, more opportunities for delivery drivers. The acquisition builds onto Uber’s leading delivery platform, allowing the company to further adapt to changing consumer habits and increase its profitability.
Drizly, on the other hand, can realize significant benefits from Uber’s advanced marketplace technologies and scope advantages. Given the firm’s popularity and international presence, Drizly could significantly expand its consumer base and geographical outreach. Moreover, Uber’s comprehensive routing technology will provide Drizly with a more efficient platform leading to greater usability. Rewards and subscription programs on the Uber Eats app would also apply to the newly integrated delivery of alcohol thus creating extra demand for their products. Finally, Drizly and Uber can grow together by reaping the benefits of the acquisition, but the brand will also maintain its app to facilitate their independent growth by employing Uber’s resources.
Deal Structure:
According to the agreement the Uber Technologies Inc will pay 90% of the consideration in stock and the remaining part, 10% in cash. The number of shares to be issued in connection with the stock consideration will be calculated based on a fixed value of $53.1570 per share bringing the food delivery company to issue more than 18.6 million common stocks.
The friendly takeover is viewed in a positive light by Uber’s investors. This is demonstrated by the 9.05% jump in Uber’s share price, from announcement day to 11th of February.
References: Sec.gov, FactSet, GreatPlaceToWork, Adweek, CNBC, drizly.com, uber.com, yahoo finance, theiwsr.com, drinksint.com, beveragedaily.com
To contact the authors:
Fangyou Ye
Valerio Hetlinger
Benedetta Magni
Andrew Yerokhin
Ronak Bhatt
Bocconi Students M&A Circle 
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