I completely understand acquisitions that create value by providing economies of scale, monopoly power or network benefits, or diversify or complement a company's activities.
But for a European market leader to buy an American market leader in what is ultimately an extremely local business... I see no real added benefit here.
Few further economies of scale when you're already at continent-size for an ultimately "local" business, no monopoly or network benefits, and zero diversification.
If this were manufacturing or retail then benefits are pretty obvious.
But in this case, what am I missing? How on earth does this justify a 27 percent premium on GrubHub? It is purely a strategic defensive move to prevent Uber from buying it, and nothing more?
* They may expect to achieve efficiencies with the business that will throw off more profit.
* They may be protecting their own territory from grubhub's eventual entry.
* They may simply have extra cash (or stock purchasing power) and want to use it to secure greater future cash flows rather than just sit on it.
* They may feel more able to enter other markets via grubhub than their own brand/company.
etc.
Edit: Also, acquisition premia reflect benefits that derive from taking a business business private, including control over the timing of dividends, no worries about control/governance, a larger-than-expected reduction in hard costs of compliance, and other factors, in addition to some of the benefits I mentioned above.
But, Just Eat and co did solve it with volume; they made it possible for countless food places to add delivery to their repertoire, and their app added discoverability.
I would never have learned about local food places if it wasn't for that app.
But really, the economics are all in operations and scale.
Some people may complain that they can’t get delivery 10 miles away from a restaurant.. but they aren’t willing to tip or pay higher for the back and forth a driver must do to earn more than it costs to pay them. Cutting to 5 or even 3 miles for delivery ranges makes a big difference for orders per hour.
If nobody subsidized delivery workers' wages with tips, delivery companies would have to start paying workers enough to make it actually worth their time to begin with, and pass those costs onto VCs and eventually consumers.
More reliable income for the delivery workers, more transparent delivery pricing for consumers. What's not to like?
A similar dynamic will likely play out in other industries where tipping is common as well.
Alas, I do end up tipping in real life because I don't want delivery workers to suffer more than they have to in the mean time until not-tipping becomes the norm and wages increase as a result, so it's a bit of a chicken and egg problem.
Just stop counting tips for minimum wage and pay everybody a liveable wage. You can't start this change from the tipping side, because that way it primarily it hurts the workers.
Tips have completely died over here due to online payment. You order, you pay, food gets delivered. There's no stage for tipping.
Back when you had to pay cash on delivery, tipping was pretty common (at least for me), but right now there's just no reasonable moment to tip anymore.
Of course its trivial to include delivery cost in the price. You know where it needs to go, so you can make a good estimate of the time it takes to deliver there, and include that in the price.
Tipping isn't bad, because of it's infrequency. It's bad because it's unclear and hidden.
Consumer service business cannot pay their service employees more, than what consumers are willing to pay for the services. In most cases the business is just a venue for consumers to acquire services from individuals. In restaurants the individuals are waiter.
The economics are that when you insert a multinational between a local restaurant and a local hungry person, revenue to the restaurant drops, prices paid by the customer rise, and service gets worse.
This is why after a couple orders right at the start of lockdown, I started calling restaurants directly. Some of them are delivering in breach of their contracts on the side, the rest I just walk over and pick up.
> The economics are that when you insert a multinational between a local restaurant and a local hungry person, revenue to the restaurant drops, prices paid by the customer rise, and service gets worse.
Exactly, when the Softbank or VC money runs out for Doordash and the like it will be total mutiny, I doubt most if any drivers, outside of the Top dasher that accepts any orders, will continue to do so when the pay rates are reflecting the true costs of all externatalities are included in the total calculus. Several drivers see their 0% acceptance rate as a badge of honor, as its their only real avenue for opposition against the low delivery pay orders.
I was interested in the logistic sides of food delivery systems, especially during the shutdown, so I started to spend an hour a day of research on DD on their subreddits, and over time that led to even doing a few dashes myself during this period... and suffice it to say, everything from their app, to customer/dasher support, to the pay model are not sustainable so long as Humans are involved in the equation.
I've spoken to local restaurant owners and cooks during the shutdown in person, having experience in the Industry, and most were reluctantly using it as crutch in difficult times but it was cutting into their over all margins, which already suck.
Now with things starting to re-open in many states I hope they start to de-couple it to be less than the 10% of their total sales for their sake.
I wonder what would happen if I signed up for Doordash as a driver, picked up as many orders as I could in one evening, and just donated the food to the poor and needy? How long until I'm booted and banned as a driver?
Disclaimer: I'm not advocating this and I'm in no way condoning such behaviour with the following.
From what I saw when they did updates, usually on Friday evenings during the dinner rush no less, the system would crash and result in any and all current orders being essentially undeliverable as the app crashed and often you couldn't log in or out of the system nation-wide for 30 mins to hours later.
Furthermore, as I was monitoring this alongside the mass unemployment numbers rising due to the pandemic I saw the influx of new users that followed: so, I noticed that many hapless, and panicked users would be unable to fulfill an order because of random situations. I started to feel really bad for them, too as most were just trying to be as honest possible.
So, while I don't suggest doing that, see disclaimer above; I think if you signed up you would eventually have an order eventually 'slip through the cracks' through not fault of your own. Customer support was based overseas, and were limited and then inundated with requests so realistically nothing was done to prevent anyone giving the order away.
What you have to also keep in mind is that these partnerships are often with franchisees' or privately owned restaurants who ultimately take the hit when food is not delivered and a refund is issued. Which is why you see vigilante like behaviour be lauded by Doordashers when they see pizza being arbitraged, and them saying 'F-Doordash.'
So, in short, if you did it long enough you wouldn't need to steal anything and your opportunity would happen anyway through not fault of your own.
I highly suggest people read the r/doordash sub-reddit, its anecdotal but also direct feedback from a wide breadth of drivers, some positive, some neutral and a lot negative ones about the absurd algorithm based compensation model: the recurring $3 for +15 mile delivery kind of deal.
So, as person who spent a lot of time in the Culinary Industry, just do the right thing and buy any food you want to donate. Playing Robinhood within this context just nets a situation in which almost nobody ever wins.
There was a user here on HN who was trying to launch his own food delivery app; I wish he'd update and see if he had any updates on his progress and if he took significant Market Share from these big players.
I'm highly sceptical about his prospects, mostly because of the upfront cost of being moral.(you'd have to pay $15/hr to a driver in NYC)
Unless he decided to go immoral and shaft the delivery people.(Having seen how much abuse undocumented waiters and delivery people suffer from the restaurants)
Ever go to an Italian restaurant and they have a 30 minute or so variance in how soon they bring your order? That’s because they don’t adjust for the online orders in their kitchen. Either constrained by physical size or staff, also most services don’t rate limit how many orders go to singular restaurants. It’s especially hard for a restaurant to suspend online ordering if they rely on email, fax, or robo called orders.
>> The economics of food delivery can’t be solved with efficiency. There’s not enough pie to split.
> Have you tried pizza pie?
IIRC, proper pizza delivery requires a special warming bag. These generic delivery companies that employ gig-working randos don't equip their drivers with those bags, so they suck at delivering pizza at any distance, greater "efficiency" or no.
These are or were available. I’ve seen several branded bags both as a diner watching the order come in and as a customer ordering food. Whether they are given away, given upon request, or available for purchase, I have no idea. And I haven’t seen one in awhile, but I’ve also greatly reduced ordering this way and exclusively use Uber when I do.
I see doordash/grubhub/ubereats folks with big insulated bags(or backpacks in the case of bike/moto folks) pretty regularly. Not sure if they are required(or provided or sold) but they are definitely available.
> I see doordash/grubhub/ubereats folks with big insulated bags(or backpacks in the case of bike/moto folks) pretty regularly. Not sure if they are required(or provided or sold) but they are definitely available.
They're available, but I don't think they're universally used. I read one article where the a pizzeria was offering bags for the drivers to borrow (because of bad reviews for cold delivery pizza), but a lot of them refused because they'd have to leave a deposit and didn't want to return to the store to return the bag.
Irrelevant point? Could be accurate, but is all the more reason for them to merge if they think it improves the business. I didn't say "this will make them profitable", OP asked why they would do it and I answered. ¯\(°_o)/¯
Mergers and acquisitions rarely work out for the entities as such. To understand why they nonetheless continue to happen so often it’s necessary to peer beyond the corporate veil and look at the incentives of the individual players.
One KPMG study found that 83 percent of these deals hadn't boosted shareholder returns, while a separate study by A.T. Kearney concluded that total returns on M&A were negative.
Everywhere I've worked, 75% or more of acquisitions or acquihires went extremely well and resulted in strategic benefit and/or gain of great talent. There are only a couple of instances that stand out as being a bad fit, and one of those companies later got sold to another player in the same space for a profit. So it's really never been a bad use of capital from my perspective.
My current office was an acquisition. Two cohorts of my colleagues are from acquisitions. One of our newer major revenue streams. Acquisition.
Unrelated thing not core to the business that we sold. Acquisition we spun off at a profit.
It's not 75% exactly, but this isn't even napkin math. Just top of mind. I feel as though you're belittling my experience and my person. Why? And also, please don't.
I've told you that from my direct experience, most acquisitions I've been witness to have been well thought out, calculated moves. It turns out we're doing a good job.
A lot of big company initiatives are acquisitions in non-obvious ways. For example even Google Maps started off as an acquisition of Keyhole Corp - a small startup focused on mapping technology.
One of the things that article overlooks though is that almost all multinational companies wouldn’t be what they are today without acquisition and inorganic growth.
Even that article says it: if Google avoided acquisitions they wouldn’t have Android and YouTube. Disney wouldn’t have Pixar and Fox. The biggest companies in the world would be different - and for the surviving multinationals often their acquisitions defined their current business.
Some of this is successful, some of this is a failure, but it’s a game that a lot of companies needed to play to achieve their current market position.
In fact, in some markets not touching M&A means not growing your core business (eg some retailers), and some big businesses may not exist anymore if they didn’t do the acquisitions they did.
As a massive Disney fan, the parks would be very different! Almost all new rides in the parks are based on Pixar / Marvel / Fox properties.
Firstly Pixar - The Pixar brand pretty much turned around the failing 'California Adventure' after the 'Pixar Pier' conversion. Toy Story alone has more rides than any other movie with Midway Mania, Slinky Dog Dash, RC Racer, Toy Soldiers Parachutes and Slinky Dog Zig-Zag Spin. The French pavilion in Epcot is getting Remy’s Ratatouille Adventure (which is already in Paris). There would be no crush coaster, no Radiator Springs Racers...
Disney probably wouldn't have entire areas of their park dedicated to Pandora and Star Wars, both of which were after the aquisitions of Fox (Avatar) and Lucasfilm (Star wars). Both Florida and California have Guardians of the Galaxy rides enabled by the acquisition of Marvel, and are planning more Marvel based attractions.
Bob Iger realised that just licencing these properties wasn't good enough - only ownership of the brand can protect Disney's long term interests ('What if pixar decides just to stop making Toy Story? Or refuses to licence their next hot property? Or gets acquired by our competitor?').
Name one decent Disney animated movie that was released after Pixar was founded (excluding Pixar films post-acquisition).
There aren’t many because most of Disney’s talent left around when Pixar was founded. Without movies to continuously hook new kids, their entire empire is a house of cards.
Pixar was founded in 1986. They started releasing theatrical films with Toy Story in 1995. Are you really saying there hasn't been a single good Disney animated movie in the past 25 years? What's the basis for that statement?
The history of the two studios is way more involved than what you're suggesting, and talent moves around between studios quite a lot. And 25 years is a long time; there have been entire generations of talent that have risen up since then, and trust me, they're not all at Pixar.
Source: I worked at Disney Animation for nearly a decade (and closely with Pixar during that time). I'm certainly not unbiased but probably way more informed.
The argument is that HBR's article is just speculation, nothing more.
Some mergers have literally saved companies, some have ruined them, some are considered 'unsuccessful' for esoteric reasons and others successful for purely numeric ones.
Just Eat Takeaway seems to be a recent creation through the takeover of just eat by takeaway. With another acquisition so soon, I think you'd find some answers if you look at how management there is compensated. If you have a willing/uninvolved board (or a board that still loves the idea of rollup companies that grow through M&A), and aquisitions help you hit a few targets (total revenues, total market cap) that get you a bonus, well, you can see where that goes.
Tax optimization - easier to funnel out money if all your subsidiaries are lending IP belonging to the same company in the Cayman Islands. Bigger the market, more "lending" from the tax-free IP holder, and less taxes payed on both sides of the Pond.
Developing a single platform counts as that. I guess it depends on how big fixed costs are compared to variable costs more than if you're the market leader. If they're a large component of them, then an acquisition could really help.
Looks like their 2019Q4 total revenue was $1.3B, cost of revenue was $790M, and opex was $530M. I assume the hope is to save a lot on opex.
> diversify or complement a company's activities.
A US business similar to the European one fits here.
I’m not convinced that unifying the tech stacks here really buys much in the way of value for a food delivery business.
The real value is the business relationship with the delivery network. A deal that expands the delivery network and adds value to customers through reduced delivery times and improved overall service is the thing that scales.
Competition... monoply. Ubers Eats and Deliveroo have massive control. I think what many of the players are concerned about is Amazon entering the market via Deliveroo investment of $500m.
Yes, I did mention that in my own comment. I can only imagine Amazon are desperate to re-enter... I mean they seem set-up for this to happen eg infrastructure. Hence, why they are investing in Deliveroo, who are also setup pretty well. In fact I reckon the investment in Deliveroo and potential acquisition of Grubhub by Uber is what shook Takeaway.com (Just Eat) into this panic buy haha
This is an all stock deal, so valuations are about as realistic as a televised poker tournament. No one is paying a 27% premium in cash; they're spending their own ridiculously valued stock.
There is no business model in the world that makes grubhub a 7B company. If proven wrong I will gladly eat a hat delivered by them.
Just Eat had a very nice profit of 101m GBP, so the business model works. However Grubhub is not that impressive, with a 12% YoY Growth, Compared to Just-Eats 43%.
From Grubhub "Revenues: $363.0 million, a 12% year-over-year increase from $323.8 million in the first quarter of 2019."
One broad thing I can think of is that there aren't strict GDPR requirements in the United States. Might be the case the value of user data alone might make the sale worth it, but I am speculating here.
I completely understand acquisitions that create value by providing economies of scale, monopoly power or network benefits, or diversify or complement a company's activities.
But for a European market leader to buy an American market leader in what is ultimately an extremely local business... I see no real added benefit here.
Few further economies of scale when you're already at continent-size for an ultimately "local" business, no monopoly or network benefits, and zero diversification.
If this were manufacturing or retail then benefits are pretty obvious.
But in this case, what am I missing? How on earth does this justify a 27 percent premium on GrubHub? It is purely a strategic defensive move to prevent Uber from buying it, and nothing more?