Uber’s board of directors approved the acquisition of food delivery brand Postmates for $2.65 billion, reports Bloomberg. Late last month, the New York Times stated the two firms had been in merger talks after the coronavirus pandemic devastated their respective revenue streams. The ride-hailing service tried to buy Grubhub earlier this year but lost out to European brand Just Eat Takeaway.
Uber plans for Pierre-Dimitri Gore-Coty, its meal transportation head, to run the combined service.
Why Uber is Eager to Buy Postmates
Uber’s core business plummeted after the coronavirus outbreak reached the United States. A combination of widespread government lockdown orders and mounting consumer anxiety caused an 80 percent drop off in taxi bookings. To keep afloat, the San Francisco-based corporation slashed its global workforce by 25 percent.
However, the firm also saw a 70 percent increase in its Eats segment as homebound workers took to ordering in.
Uber attempted to capitalize on the division’s growth by making an offer to the owners of Grubhub in May. However, Amsterdam-based Just Eat Takeaway had the same idea and bought the firm for $7.3 billion last month. Undaunted, the online logistics company entered talks to consolidate the American food transportation sector by sending out feelers to Postmates.
Given its recent income difficulties, Uber is not in the best shape to make multibillion-dollar purchases. But facing existential headwinds, the company needs something to revive its fortunes, and buying Postmates could be a viable medium-term solution. By absorbing a rival, the corporation could increase its pricing and make its meal service department highly profitable.
How Postmates Benefits from Being Acquired by Uber
Since Uber is a publicly-traded corporation, its easier to understand how the coronavirus pandemic has impacted it. In May, the ride-hailing firm announced it lost $2.9 billion in the first quarter. As a private company, Postmates’ financial picture is ambiguous, but a buyout is likely in its best interest.
The food delivery service sustained a major financial hit at a time when it had been planning to go public. Last September, the firm raised $225 million at a valuation of $2.4 billion, up from $1.9 billion earlier in the year. The company had plans to launch its initial public offering (IPO) in October of this year but delayed them in the wake of coronavirus prompted economic contraction.
With the viral illness marring long-term visibility, Uber’s offer could be a life raft for Postmates. Under current conditions, there is no telling what price the meal transport service’s shares would sell. But by accepting the digital taxi corporation’s offer, the firm’s investors would be made whole in a time of uncertainty.
If Postmates tried to wait out the storm, it could risk launching a suboptimal IPO in a more competitive market. That is not to say the food delivery service did not negotiate aggressively. The Motley Fool mentioned the company prepared to go public this week before coming to terms with Uber.
Even with a deal in place, a tie-up between brands is not guaranteed. U.S. lawmakers could object to the merger on antitrust grounds. But with DoorDash leading the market and Grubhub likely to continue operations post takeover, the sector is still highly competitive. That said, with two major food delivery buyouts in as many months, the industry might not be done consolidating.