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Exacting diners will give a messy meal short shrift. Likewise, investors in food delivery apps ascribe little value to companies presenting a hodgepodge of assets. Making an effort to tidy things up can reveal a much more attractive proposition.
That, at least, is the lesson from Delivery Hero’s $950mn sale of its Taiwanese unit to Uber Eats this week. Coupled with Uber’s $300mn equity investment in Delivery Hero itself, it was enough to add $1.75bn, or about a quarter, to its market capitalisation.
In part, that reflects the fact that Delivery Hero got a good price. Uber is paying 0.6 times GMV, or the value of the merchandise delivered over the past 12 months. Delivery Hero itself trades on nearer 0.3 times. The $1.25bn of cash will also bring the company’s €3.9bn of net debt to more manageable levels.
Like weeknight cooks elated to find a forgotten jar of mushrooms in the larder, Delivery Hero’s investors may also be rediscovering overlooked ingredients. Valuing its three largest markets — South Korea, Saudi Arabia and the United Arab Emirates — on a multiple of 10 times 2025 adjusted ebitda yields an equity value of €5.6bn, according to Bernstein Research, or about 85 per cent of the group’s pre-deal market capitalisation. Its presence in a further 67 countries had clearly been mouldering at the back of the fridge.
Delivery Hero’s Taiwanese transaction is not entirely replicable. One reason Uber is paying up is that it will become a virtual monopolist in Taiwan’s food delivery sector. Antitrust clearance is not a given, and would be hard to imagine in other markets.
Yet the deal should still give investors in the sector something to chew over. They should already have been encouraged by an increasingly rational approach in what had been a freewheeling sector, with Deliveroo, Delivery Hero and Just Eat Takeaway all expected to turn cash flow positive this year. Consolidation could be the next leg of this trip.
There are a number of markets — especially in south-east Asia or Latin America — in which three or more food delivery companies are still slugging it out. Taking out the weaker players would improve the market for everyone.
There is also a case to be made for cross-border M&A to create stronger regional brands. While the food delivery business is a local one, scale does help spread technology, advertising and other fixed costs. And, if all else fails, exiting tiny or underperforming markets should help clean up their equity story.
