The race to the bottom has been an investable theme as competitive pressures increase in the food delivery space, as delivering food over the last mile is not profitable. On the other side of the business model, the marketplace orders are very profitable, and DoorDash's successful IPO suggests changing the space rules. Bigger is better!
Apart from UBER Eats, the only other global player in the food delivery space is Just Eat Takeaway, when it closes its acquisition of GRUB on June 10th. The recent moves in Germany by some of the biggest players suggest M&A could be on the horizon. Lastly, with Grocery and Convenience now part of the TAM, the need for M&A has grown.
There are numerous ways to get paid being long TKWY:
- Was buying GRUB a gold mine and will it lead to significant upside? (20% chance)
- Activist gets involved in TKWY to focus on profitability and sale of ifood. (30% chance)
- Sale of the ifood stake to Prosus. (better than 50% chance)
- Prosis makes a bid. (better than 50% chance)
Two of the biggest players in the delivery market desire to grow into highly competitive markets or make acquisitions to fill in any holes. The German-based Delivery Hero has no presence in the US, and DoorDash has no business outside of North America. DASH has said it wants to grow organically internationally, but we will see how long that lasts.
Uber Eats made a recent announcement that it will enter the German market, followed by Delivery Hero's announcement of re-entering its former home, and Just Eat/Takeaway has launched grocery delivery in Germany. Following that move, DoorDash has signaled it wants a piece of the market through job postings on LinkedIn, signaling it wants to build an EU playbook, starting with Germany. These actions caused a 20% dip in TKWY, as GRUB and TKWY are in the final stages of merging. Over the past three years, TKWY has underperformed the S&P 500 by 10%. Narrowing the time frame to one and two-year periods, the stock has underperformed by 62% and 60%, respectively. More often than not, underperformance like this gets the attention of activists.
The recent announcements from UBER and DHER are reminiscent of the actions in early 2020, when an activist investor likely pushed Grubhub to hire Evercore to explore strategic alternatives, triggering a bidding war. According to the company filings, the bidding war was between Uber, Takeaway, and a mysterious "Company B," We can only speculate that "Company B" may have been Delivery Hero and its 24% owner Naspers/Prosus. In 2019, Naspers lost a bitter takeover battle of Just Eat to Takeaway, which is now expanding into the US with the purchase of GRUB. Prosus has publicly stated its want to be in the delivery space. In early February 2020, Delivery Hero said it would buy 8.4 million additional Just Eat Takeaway.com shares by entering into a forward share purchase agreement. It bought the forward share purchase to restore the company's exposure in Just Eat Takeaway.com to 10.6% after the dilution caused by the merger with Just Eat.
One can naturally assume that DHER and Prosus believe TKWY to be a strategic asset. Given the size of the global delivery prize, others would be interested too! Adjusting for the value of TKWY 33% stake in ifood, TKWY is trading at less than 1.8x 2022 sales while group trades at 4-5x and Prosus at 27x 2022 sales.
More details to come.
