Just Eat acquires Grubhub for $7.3B in food delivery consolidation

Two pioneers in restaurant delivery — Just Eat and Grubhub — are combining in a $7.3 billion US deal that will create one of the world's largest delivery companies.

Grubhub had earlier been eyed by Uber for a potential deal

A photo shows the Grubhub app on an iPhone in Chicago. Just Eat is acquiring Grubhub in a $7.3 billion deal that will create one of the world's largest restaurant delivery companies. (Charles Rex Arbogast/The Associated Press)

Two pioneers in restaurant delivery — Just Eat and Grubhub — are combining in a $7.3 billion US deal that will create one of the world's largest delivery companies.

Just Eat said late Wednesday that it was acquiring Chicago-based Grubhub, snatching it away from ride-hailing giant Uber, which had been reportedly seeking to team Grubhub with its Uber Eats business.

The deal is expected to close in the first quarter of 2021. The combined company will be headquartered in Amsterdam, with its U.S. headquarters in Chicago.

Just Eat and Grubhub processed 593 million restaurant orders in 2019 and have about 70 million users worldwide. Combined, they will be the largest restaurant delivery company outside China.

Just Eat said it will acquire 100 per cent of Grubhub's shares at an implied value of $75.15 per share. Grubhub shareholders will receive depository receipts representing a portion of shares in the new company.

Grubhub shares closed at $59.05 Wednesday.

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If Uber had succeeded in buying Grubhub, it would have given the companies control over a majority of the U.S. food delivery business, but could have run into snags with regulators. Just Eat doesn't operate in the U.S.

"Like ridesharing, the food delivery industry will need consolidation in order to reach its full potential for consumers and restaurants. That doesn't mean we are interested in doing any deal, at any price, with any player," Uber said in a statement.

Orders grow during pandemic

Matt Maloney, Grubhub's founder and CEO, will join Just Eat's board and will lead the company's North American business, the companies said. The merger will let the companies share technology and marketing costs and provide the broadest range of services to restaurants and consumers, the companies said. and Grubhub, both founded in the early 2000s, were some of the earliest entries in the sector. But they've been joined by a host of others, including Uber Eats, DoorDash, Deliveroo and Postmates.

Customers jump freely between the services, which makes it difficult to deliver stable sales. Aggressive discounting and heavy marketing costs to win new users have also taken a toll on profits, and restaurants have been pushing for lower fees.

As a result, consolidation has been a constant in the industry. Grubhub acquired Seamless in 2013, while DoorDash bought the upscale service Caviar last year.

In January, bought its British rival Just Eat for $7.8 billion. Combined, those companies have 48 million active users and reported revenue of $1.7 billion in 2019. Grubhub has 23 million active users and reported revenue of $1.3 billion.

The coronavirus pandemic has boosted sales for both Just Eat and Grubhub, with restaurants shuttered, more people staying home and ordering takeout food. Grubhub's orders grew 28 per cent over the prior year in April and May, while Just Eat's orders grew 41 per cent.

Grubhub 2nd in U.S. market share

In Canada, Just Eat provides service through Skip the Dishes, its subsidiary headquartered in Winnipeg. Just Eat also provides deliveries in Europe, Australia, Israel, New Zealand, Mexico and Brazil. 

Grubhub, also present in Canada, operates in 4,000 U.S. cities. It holds around 30 per cent of the U.S. food delivery market, according to Second Measure, a data analysis company. That's less than the 37 per cent controlled by DoorDash, but more than Uber Eats' 20 per cent share. Grubhub is the leader in key markets like New York, Boston and Chicago.

Despite winning new customers, Grubhub struggled to remain profitable as competition heated up. The company reported a net loss of $18.6 million in 2019. In the first quarter of this year, Grubhub's revenue rose 12 per cent to $363 million, but it reported a net loss of $33.4 million.