Delivery Hero’s €2.3bn Acquisition of Glovo

By Yair Trachtenberg, Ismael Fathy Martínez, Nikita Bezverkhniy, Markus Walter, and Julia Donato (ESADE), Luc Roberts, Ben Schwarzmann, and Priyanshu Srivastava (University of Warwick)

Photo: Rowan Freeman (Unsplash)

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Overview of the deal

Acquirer: Delivery Hero SE

Target: Glovoapp23, S.L.

Total Transaction Size: €774 million (as of close 30/12/2021)

Implied Equity Value: €2.3 billion

Closed date: Ongoing

Acquirer advisor: JP Morgan

Target advisor: Morgan Stanley

German online food delivery service, Delivery Hero, which currently own a 43.8 percent stake in Barcelona based unicorn Glovo, has now signed an agreement for an additional 39.4 percent stake. The transaction values Glovo at €2.3 billion on a fully diluted and debt-free basis and will make Delivery Hero the largest shareholder of the company. The deal was driven by a complementary geographical footprint and it is expected that the two firms will intend to further improve efficiencies, yielding large cost savings, by utilising both their respective technologies.

“I believe our potential is untapped, and I’m happy to have found a partner that matches our ambition, culture and will keep supporting this adventure we’ve embarked on to drive innovation further, strengthen our multi-category offering and create additional value for all our stakeholders, and the industry.” - Oscar Pierre, CEO of Glovoapp23, S.L.

Company Details (Acquirer - Delivery Hero SE)

Delivery Hero is a German multinational specialising in online food-service delivery. It is the leading player in the category of quick commerce, focused on delivering small batch orders in under an hour. The company’s portfolio comprises Foodpanda, PedidosYa and Click Delivery among many other industry-related players.

Founded in 2011, headquartered in Berlin, Germany

CEO: Niklas Östberg

Number of employees: 43,838

Market Cap: €16.36 billion (as of 04/02/2022)

EV: €17.64 billion

LTM Revenue: €3.9 billion

LTM EBITDA: (€988 million)

LTM EV/Revenue: 4.44x

LTM EV/EBITDA: -12.23x

Company Details (Target - Glovoapp23, S.L.)

Glovoapp 23, S.L. is a mobile-based application that provides services (inclusive of pickups and deliveries) to e-commerce stores, restaurants and other shops. The Spanish firm’s strategic partnership with Carrefour has allowed it to explore other international markets including Argentina, France and Italy.

Founded in 2015, headquartered in Barcelona, Spain

CEO: Oscar Pierre

Number of employees: 1,900

FY2020 Revenue: €140.5 million

Projections and Assumptions

Short-term consequences

The acquisition comes after Delivery Hero’s previous €51 million investment in Glovo in May 2018, where it led the company’s Series C funding. Glovo has since established itself as a leader in 16 of the 25 countries it operates in, including its core market in Spain, the largest by gross transaction volume. The geographical overlap between the two companies is particularly complimentary, with the acquisition increasing Delivery Hero’s reach by 700 million people, to a total population of 2.2 billion. After closing, Glovo’s management team is expected to remain, and the company will continue to operate under its current platform and brand.

Delivery Hero’s acquisition of the additional 39.4 percent stake will be paid in stock through the issuance of 7.9 million new shares, representing an equity value of €774 million based on Delivery Hero’s pre-announcement share price. Since the announcement on December 31st 2021 Delivery Hero’s share price has dropped over 34 percent, underperforming competitors such as Deliveroo, DoorDash, and Just Eat Takeaway and now trading at a discount (on an EV/Revenue basis). The sharp decline was driven by news of rising labour costs and an antitrust probe into Delivery Hero’s operations in Norway, alongside changing market conditions for tech stocks linked to inflationary pressures. According to the transaction details, the stock exchange will occur at a fixed ratio, therefore the consideration is currently valued at €515 million, with the transaction expected to close in the second quarter of 2022.

Long-term Upsides

According to a new report released by McKinsey, the food delivery market is exponentially growing and will continue to do so in the future. In the United States, the market has more than doubled during the COVID-19 pandemic, following healthy historical growth of 8 percent and is planned to grow at a rate of 11 percent in Europe in the next few years. Consequently, Delivery Hero detected an attractive option in Glovo that could allow a greater geographical presence, as they are complementary, add loyal customers and increase profitability.

As the world’s leading local delivery platform, Delivery Hero plans to grow even more with the acquisition of Glovo in the next few years in a rapidly moving market. In the long run, the two companies will benefit from a synergy of resources and ideas as a result of the acquisition, resulting in product development, improved efficiencies and value enhancement for customers.

With the transaction, Delivery Hero and Glovo, both pioneers of rapid commerce, will expand their leading positions and drive innovation together. Accordingly, the operation will allow them to “join forces” and strengthen their footprint, reaching a population of 2.2 billion, of which Glovo contributes 700 million and leveraging shared technology.

An additional benefit of the deal is that job loss will be non-existent, as Glovo will continue operations with its platform and brand.

Risks and Uncertainties

One of the main risks of Delivery Hero’s acquisition of Glovo is the question of whether the deal will be allowed to be closed. Delivery Hero approached Antitrust authorities in Spain, Poland, Romania and Portugal, countries in which they currently do not operate. The approval of the acquisition is still pending and will most likely be announced in Q2 of 2022. With their combined forces, Delivery Hero and Glovo will reach around 2.2bn users globally, significantly increasing their market share.

In its previous acquisition of Woowa, South Korea's leading online food delivery platform, Delivery Hero had to disinvest 100% of Delivery Hero Korea to close the deal.

However, because of their complementary presence in Europe, Africa and Asia and the more concentrated market, watchdogs are more likely to approve of this acquisition.

Another risk will include the uncertainty of the food delivery market itself. During the pandemic, demand for deliveries boomed, with sales spiking by 120% in 2020. Glovo for instance saw 80% of organic GTV growth. Due to this, Delivery Hero is expecting its food business, including Glovo and internal cost transactions, to break even by Q4 of 2022. It is uncertain whether Delivery Hero and Glovo will become profitable so rapidly post-pandemic.

“We will continue to invest in Glovo’s team and product, and see many opportunities to further enhance their operations with our resources and expertise.” - Niklas Östberg, CEO of Delivery Hero SE