Ride-hailing giant Uber has agreed to an acquisition of on-demand food delivery company Postmates in a deal estimated to be worth $2.65 billion, as reported by Bloomberg early on Monday, July 6. The acquisition will be an all-stock buyout, with Uber Eats head Pierre-Dimitri Gore-Coty expected to continue running the delivery business of both Uber Technologies Inc (NYSE: UBER) and Postmates.
Ever since Dara Khosrowshahi took over as the CEO of Uber, the company has looked at aggressively expanding its presence across related segments within the last-mile market – be it moving people or products. Uber's fortunes in the last-mile food delivery segment are crucial, as it continues to leak money within its ride-hailing business.
Though Uber consistently adds more drivers and reports more rides every quarter, its operating expenses remain high, limiting the company's prospects at increasing margins. This led Uber to shut down or sell off its ride-hailing operations in several markets and geographies, including China, Southeast Asia, Russia and the Middle East.
Although the Eats division is Uber's most profitable segment, it still loses considerable money. But with the "growth at all costs is over" statement from Khosrowshahi during the company's first-quarter earnings call, it can be seen that Uber is shifting its energy towards businesses that show potential towards realizing a positive bottomline.
Uber's takeover discussions with Postmates have been on the table for about four years before the current offer was finalized. Postmates was last valued at $2.4 billion in September 2019 when it raised $225 million in venture capital, taking its total funding to roughly $1 billion.
Before the deal with Uber, Postmates was looking to go public, confidentially filing for an initial public offering (IPO) in February, before rescinding due to the pandemic.
On Uber's end, it needs to be noted that the company's initial acquisition interest focused on food delivery company GrubHub, a publicly-traded rival in the market. Unfortunately for Uber, the deal fell through, as European food delivery major Just Eat Takeway.com bought GrubHub for $7.3 billion in June.
While the current Postmates acquisition can certainly not be considered a knee-jerk reaction to its GrubHub debacle, it is evident that Uber is looking to buy its way to increasing its market presence. Postmates accounts for 8% of the U.S. food delivery market, completing 5 million deliveries per month as of February,
With COVID-19 in the picture, it is evident that food delivery services are in higher demand within cities than car rides. Uber witnessed this first-hand, seeing its ride-hailing gross bookings drop over the first quarter, while gross sales in Uber Eats shot up by 54% from the fourth quarter of 2019. As the pandemic continues to play a significant role in how societies function, this trend is only expected to grow in the near future.
More from Vishnu Rajamanickam
All that you need to know on Uber's run-up to its IPO
Deliveroo is leaving the German last-mile food delivery market
Takeaway.com and Just Eat merge to become a global superpower in on-demand food delivery
See more from Benzinga
- Freight Rail News Round-Up
- Breaking: More Than 3,200 Trucking Companies Received More Than 0,000 From PPP
- Maersk Aims To Expand European Customs Brokerage Footprint
© 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.