Delivery Hero/InstaShop: meal deal
German company buying Dubai-based ecommerce site for $360m
Food delivery companies have shown gargantuan appetites for M&A. Think Takeaway.com, which has rolled up America’s GrubHub and Just Eat of the UK. China’s Meituan Dianping, the sector giant, has been more adventurous, moving into bike sharing and farm distribution. Now Germany’s Delivery Hero is buying InstaShop, a Dubai-based ecommerce site, for $360m.
Instashop is an asset-lite store that takes commissions from grocers and other merchants on its app. That, unusually in the world of food delivery, makes it profitable — although probably not by much. It is also growing rapidly, with gross merchandise value (GMV) — the total paid by buyers for goods bought over the app — up 330 per cent at an annualised $300m in the second quarter. Assuming a take rate similar to Uber Eats implies net revenues of $30m.
Delivery Hero is thus buying growth. The multiple looks ridiculously heady based on a few million dollars of ebitda, but at just over one times gross merchandise value it compares favourably with peers trading on around 4-5 times.
Delivery Hero itself trades at under four times and is heavily loss making, to the tune of 28 cents in every euro at the ebitda level in the first half. It too is all about growth, including from M&A. That makes sense. Online delivery is a game of scale and branching out, both geographically and into different products such as groceries and flowers. It is how China’s superapps flourished and the reason why the model is now being aped by the likes of Uber.
Still, some caution is merited. For one, GMV is a slippery metric. For another, the youthful Delivery Hero — which has just been promoted to the DAX 30 — has rather a lot on its plate. That includes a $4bn tilt at Woowa Brothers, which runs popular South Korean food delivery app Baemin. The deal awaits regulatory clearance. This is a cut-throat business with often punitive customer acquisition costs. Tempting as the acquisitions look, the risk of indigestion looms large.