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A Grubhub-Uber tie-up would remake the food delivery landscape

Earlier today news broke that Uber is pursuing an acquisition of Grubhub. The global ride-hailing giant is worth a multiple of the American food delivery service, making the tie-up financially feasible, provided that a palatable price can be found for both parties.

The Wall Street Journal broke the news; you can read TechCrunch’s coverage of the deal here.

The deal could shake up the large, if generally unprofitable American food delivery market, a space contested by Uber’s Uber Eats service, Grubhub, DoorDash and Postmates. The combination could create the largest food delivery entity in terms of sales, changing leadership in its market and perhaps reducing competition.

Let’s unpack the deal in terms of its cost, why Uber has to pay in stock, how large a combined Uber Eats/Grubhub entity would be compared to its competition and why adjusted EBITDA helps us understand how this acquisition could give Uber’s bottom line a shot in the arm.

An all-stock purchase?

In normal times, this deal would likely be a mix of cash and stock. However, in 2020, with Uber’s market position being what it is, it’s likely that this would be an all-equity transaction. Why? Because Uber needs to conserve cash at nearly all costs. Its only historically profitable division (ride-hailing generates heavily adjusted profits) is in the tank, with ride volumes down as far as 80% in April, compared to its year-ago period.

A Grubhub-Uber tie-up would remake the food delivery landscape

Earlier today news broke that Uber is pursuing an acquisition of Grubhub. The global ride-hailing giant is worth a multiple of the American food delivery service, making the tie-up financially feasible, provided that a palatable price can be found for both parties.

The Wall Street Journal broke the news; you can read TechCrunch’s coverage of the deal here.

The deal could shake up the large, if generally unprofitable American food delivery market, a space contested by Uber’s Uber Eats service, Grubhub, DoorDash and Postmates. The combination could create the largest food delivery entity in terms of sales, changing leadership in its market and perhaps reducing competition.

Let’s unpack the deal in terms of its cost, why Uber has to pay in stock, how large a combined Uber Eats/Grubhub entity would be compared to its competition and why adjusted EBITDA helps us understand how this acquisition could give Uber’s bottom line a shot in the arm.

An all-stock purchase?

In normal times, this deal would likely be a mix of cash and stock. However, in 2020, with Uber’s market position being what it is, it’s likely that this would be an all-equity transaction. Why? Because Uber needs to conserve cash at nearly all costs. Its only historically profitable division (ride-hailing generates heavily adjusted profits) is in the tank, with ride volumes down as far as 80% in April, compared to its year-ago period.

VC’s largest funds make big bets on vertical B2B marketplaces

During the waning days of the first dot-com boom, some of the biggest names in venture capital invested in marketplaces and directories whose sole function was to consolidate information and foster transparency in industries that had remained opaque for decades.

The thesis was that thousands of small businesses were making specialized products consumed by larger businesses in huge industries, but the reach of smaller players was limited by their dependence on a sales structure built on conferences and personal interactions.

Companies making pharmaceuticals, chemicals, construction materials and medical supplies represented trillions in sales, but those huge aggregate numbers hide how fragmented these supply chains are — and how difficult it is for buyers to see the breadth of sellers available.

Now, similar to the way business models popularized by Kozmo.com and Webvan in decades past have since been reincarnated as Postmates and DoorDash, the B2B directory and marketplace rises from the investment graveyard.

The first sign of life for the directory model came with the success of GoodRX back in 2011. The company proved that when information about pricing in a previously opaque industry becomes available, it can unleash a torrent of new demand.