The food delivery app space has become one of the most contested sectors in recent years, with many well-funded startups falling to the wayside while a group of key victors emerge globally. But while there has long been talk of consolidation among these top competitors, so far the moves have mainly been larger companies purchasing smaller ones.
Just Eat's share price increase on Takeaway.com announcement
That all changed last week when it was announced talks had begun for Amsterdam-based Takeaway.com [TKWY] to take over London’s Just Eat [JE]. The competitors are roughly equivalent in size and market capitalisation, having fulfilled a combined 355 million orders worth €7.3bn (£6.7bn) in 2018.
The deal would see Just Eat shareholders receive 0.09744 new Takeaway.com shares for each of their existing shares, with Just Eat shareholders owning 52.2% of the new company. The expanded Takeway.com company would be listed on the LSE, but based in Amsterdam and led by Takeaway.com CEO Jitse Groen.
The announcement sent Just Eat’s struggling share price up by nearly 23%. After slightly dropping off, as of Monday’s open, the firm is trading just 7.4% off its six-month high of 787p, while it is 22% off its all-time high of 890p, reached in early 2018.
Analysts have welcomed talks of the merger. Barclays said: “Just Eat shareholders would be getting the best operator in the space to run the business – a notable shift from missed execution from management in the last few years.”
Alex Captain at Cat Rock added: “The proposed transaction is excellent news for Just Eat shareholders. The combined company would be an exceptionally high quality business with formidable market positions in major countries, fantastic growth prospects and world-class management.”
But will positive share price momentum continue ahead of the merger? Many analysts think so, particularly as the deal is waiting to be signed and a bidding war is likely in this scenario. Many believe competitive offers could come from Deliveroo, Berlin’s Delivery Hero or Naspers, a South African internet and media company.
According to Interactive Investor, the consensus across analysts is a strong hold for Just Eat.
The announcement comes as a host of moves are being made across the sector, including an entry by Amazon [AMZN] – the company led a $757m (£622m) finance round in privately-held Deliveroo in May of this year. It is also rumoured that Amazon, which is in a battle for grocery dominance in India with Walmart [WMT], could buy Uber Eats’ business in the country.
While in the US, privately held DoorDash, which holds 34% of the delivery market there, acquired Square-owned Caviar for $410m (£337m) in stock at the start of August. One of its key competitors, Postmates, which holds 10% of the total US market, is said to be exploring a sale to Uber Eats, which holds just under 20% of the US market.
Back in Europe, the merger of Takeaway.com and Just Eat comes after the former last year took over Delivery Hero’s German business for €930m (£855m) and Hungry House for £200m, respectively.
|PE ratio (TTM)||133.10|
|Operating margin (TTM)||10.49%|
Just Eat share price vitals, Yahoo finance, 07 August 2019
But some analysts are sceptical of the industry’s capability to grow further. While expanding in metropolises is profitable, due to apartment buildings facilitating multiple deliveries in close proximity, as soon as the drops become spread out in suburban or more rural areas, the economics don’t stack up.
“The problem you face with delivery is ensuring that you gain enough drops per hour to establish profitability. By opening it up to groceries, or non-takeaway food, you may gain more orders, but these may not overlap, which will just add extra costs,” James Lockyer, an analyst at Peel Hunt, recently told the Financial Times.
It’s why analysts are increasingly attributing the sector with a ‘winner takes-all’ outlook, as the number of major players is whittled down on each continent. Traders and investors who make the right pick could be well rewarded.