Major shareholder of Just Eat pushes for Grubhub acquisition with newly-released analysis

Cat Rock Capital Management promotes merger via competitive analysis

The Just Eat merger with Grubhub received a boost today with the release of a favorable presentation by a majority shareholder, Cat Rock Capital Management LP. The Greenwich, Conn.-based investment firm owns approximately 4.5 percent of Just Eat’s outstanding shares. The analysis presents the case that Just Eat and Grubhub will be more strongly-positioned after the merger, also projecting a bright future for Grubhub in the US market.

According to section of the analytical presentation, which also touched on the companies’ global penetration and competitive advantages, Grubhub’s long-term value is set up by its profitability, hybrid-marketplace model and penetration in core US markets. The company has shown positive adjusted EBITDA in the near-term and it surpassed $230M in adjusted EBITDA in 2018. But driving profitability can be a double-edged sword: Grubhub has not made substantial investments in its business, and that is a hindrance to growth in market share.

Grubhub holds a key advantage, however: It is a hybrid-marketplace delivery company, meaning that the delivery service hires drivers to deliver orders, but also provides a marketplace for restaurants to take orders for food and deliver it themselves. This hybrid model, according to Cat Rock, is stronger than the logistics model that is exemplified by Uber Eats and DoorDash.

Along those lines Cat Rock offers up a history of logistics-based delivery services not doing well in other mature markets. Additionally, it posits that logistics companies will not be able to grab a significant share of marketplace restaurants (eateries that have their own delivery fleets). Noting the delivery company’s record of few promotions and discounts, Cat Rock suggests Grubhub can continue to grow profitably. Meanwhile, logistics delivery companies, like Uber Eats, will amass greater sales while posting huge losses.


The acquisition by Just Eat will also solve some issues. Grubhub has fallen behind its competitors in the US when it comes to overall diner penetration. Just Eat will deploy a three-fold strategy for Grubhub: Invest aggressively, add chains and non-partnered restaurants to its network—the latter a controversial move here in the US as regulators seek to dive deeper into the practice—and “attack the suburbs,” particularly those around Grubhub’s core markets.

According to Cat Rock Capital Management, the marketplace model offers lower delivery fees, which is attractive for growth over the long term. It also better-positions Grubhub over logistics-based competitors. In addition, the marketplace model provides Grubhub restaurant partners that have established consumer demand. Finally, these types of orders are more profitable.

Grubhub’s shares are up over 14 percent from June at $72.90. The merger agreement is valued at $7.3B. With the release of this analysis, Cat Rock hopes to convince shareholders who are voting on the merger to approve the deal. There are three reasons the deal should move forward, according to the firm:

  • Growth: Just Eat increases its addressable market by approximately 100 percent, adding to the Grubhub’s already substantial runway for growth
  • Profits: Just Eat will increase Grubhub’s revenue by approximately 70 percent, while increasing its share count by only about 40 percent, even as Grubhub grows GMV by 60 percent
  • Strategy: Just Eat further hampers the global ambitions and viability of logistics-based competitors through this acquisition

Grubhub can also invest in the massive greenfield online food delivery opportunity outside of its core markets,” said Alex Captain, Cat Rock Capital Management founder and managing partner. “These markets have low penetration and remain open to new entrants, while Grubhub’s core markets have much higher penetration and therefore offer little opportunity for new entrants to win market leadership.”

To review Cat Rock’s statement and presentation, navigate here.

Photo credit: Grubhub (featured preview image)

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