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They say the way to a loved one’s heart is through the stomach. For shareholders, they are their pockets. In an effort to rekindle old flames, food delivery companies have started turning a profit.
As an appetizer, ebitda turned positive for all three: Deliveroo, Delivery Hero and JustEatTakeaway for the first time last year. The main course is expected to be consolidation, followed by some positive free cash flow this year. acquisition talks between DoorDash US and UK Deliveroo revealed on Wednesday give a glimpse of what’s to come.
Mergers and acquisitions have a checkered history in this sector. Stock prices at a fraction today of their pandemic-era peaks testify to that even as profits emerge. The consolidation has largely solidified positions within the respective operating territories. Gaps in operations mean some small agreements in the country possible from the point of view of competition. But a large cross-border acquisition is necessary. And with the current strength of financial markets that gives the United States the advantage.
Given its stock’s current premium rating, U.S. executives can’t ignore acquisitions in Europe, says Jefferies’ Giles Thorne. DoorDash shares trade at a multiple of 17 times enterprise value to 2025 ebitda, compared to 8 times that of Deliveroo.
Deliveroo tops the menu for multiple reasons. He has strategically led the industry with strong positions in high-density markets such as London. It was also the first to operate dark kitchens and offer grocery delivery. Additionally, it is expected to end the year with more than £600m in cash in the bank, according to Visible Alpha consensus.
Compare that to JustEatTakeaway, which is cheaper at a multiple of 5 times its ebitda but also has operational problems, with efforts to offload its US Grubhub business hampered by caps on fees in New York. It has also incurred large writedowns from the Grubhub acquisition that was made at the top of the market in 2021.
DoorDash’s talks with Deliveroo likely fell through over price. Deliveroo shares rose only a low single-digit percentage on the news, hardly reflecting a typical 30 percent takeover premium. However, DoorDash could pay up to a 20 percent premium on top of the current share price and the deal should still generate free cash flow in 2025, according to Lex’s calculations. The door to a deal remains wide open.