The $2.65B transaction will increase tech efficiencies, produce savings
Uber Technologies reached a deal to buy Postmates for approximately $2.65B. The all-stock transaction for Postmates follows a June deal in which Amsterdam-based Just Eats Takeaway agreed to buy Grubhub for $7.3B. Postmates’ different geographies and mom-and-pop restaurant relationships were part of what attached Uber to the table.
The delivery-as-a-service model of Postmates, including grocery shopping & delivery, was another factor propelling the Uber-Postmates agreement, which should be completed by 1Q 2021..
Experts expected hefty consolidation in the third-party delivery sector, which is not yet profitable for these providers. Grubhub, Uber Eats and Postmates had been chasing DoorDash, which is the top third-party restaurant delivery provider by market share. The third-party restaurant delivery model will face additional disruption as consolidation and restaurant pushback on commissions, which can average around 30 percent for independents, continue.
“As more people and more restaurants have come to use our services, Q2 bookings on Uber Eats are up more than 100 percent year on year,” said Dara Khosrowshahi, Uber chief executive. “We’re thrilled to welcome Postmates to the Uber family as we innovate together to deliver better experiences for consumers, delivery people, and merchants across the country,”
Although Uber Eats executives are touting more tools and technology to the combined entity’s customers, third-party service providers have been much in the press as of late due to high commission fees charged to restaurants. Cities that include New York, San Francisco, Seattle and Washington, D.C., have gone on to cap fees, at least in the short term. A total of 71 percent of restaurant operators agree that fees should be capped, according to Technomic, a Chicago-based foodservice consultancy.
A merged Uber Eats and Postmates platform will better compete against a strengthened Grubhub network and DoorDash. It will also expand the network of choices for diners using the service, and the Postmates app will continue running independently. In addition, delivery drivers of the combined platform will benefit from greater batching of orders to increase income, announced the companies.
On a conference call, Uber announced Postmates had booked $643M in bookings during Q2, a 67-percent year-over-year increase. The delivery service is also increasing bookings 50 percent quarter-over-quarter. Major Postmates markets, including Los Angeles, Las Vegas, Orange County, Phoenix and San Diego, will be added to the combined delivery platform, with many of these restaurants operating exclusively on Postmates in the recent past. Moreover, Postmates is batching three orders per courier per hour, which is said to be impressive.
Postmates also brings 115K restaurants and 10M active delivery users to the fold. The deal should bring $200M in run-rate savings during the first year after the transaction is completed, predicted Khosrowshahi. Uber executives also project the merged platform to also produce savings and efficiencies for customers. According to Uber, take-rates (restaurant commission fees) may decrease, as well. A Technomic survey indicates 76 percent of restaurant operators would like flat-fee commissions.
According to Nelson Chai, Uber chief financial officer, Postmates will become a new business unit, reporting to Pierre-Dimitri Gore-Coty, vice president of Delivery and Uber Eats.
“Uber and Postmates have been strong allies working together to advocate and create the best practices across our industry, especially for our couriers,” said Bastian Lehmann, Postmates co-founder and chief executive. “Together we can ensure that as our industry continues to grow, it will do so for the benefit of everyone in the communities we serve,”
Postmates’ aggressive customer acquisition tactics and its subscription model also came to Uber executives’ attention. It’s likely Uber’s management team will absorb some of the ideas, as they praise Postmates’ leadership team for their accomplishments. The acquisition will also bolster Uber’s delivery and logistics model, brining new categories to the company, including groceries, homewares and prescriptions, to name a few, and new technology.
The boards of both companies approved the transaction, which will see Uber issue approximately 84M shares, valued at $31.45 each, for the fully-diluted value of Postmates’ outstanding shares. The deal requires regulatory approval and is still subject to approval by shareholders of Postmates.
Wachtell, Lipton, Rosen & Katz served as legal counsel to Uber. J.P. Morgan Securities LLC advised Postmates on the deal’s financial matters, while Latham & Watkins LLP acted as legal counsel to Postmates.
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