Takeaway.com’s £6.2 Billion Merger with Just Eat

By Niklaus Straussberger, Helene Kapelari, Noah Al-Hachich (Vienna University of Economics and Business), Charlie Solnik, Ryan Tenerowicz, Ory Ratoviz (California Polytechnic State University)

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Overview of the deal

Acquirer: Takeaway.com N.V.

Target: Just Eat PLC

Estimated Value: £6.2bn

Announcement Date: 07/29/2019 (approved on 4/23/2020)

Acquirer Advisors: BofA Merrill Lynch, Lazard, Gleacher Shacklock

Target Advisors: Goldman Sachs International, UBS, Oakley Advisory

The recently approved merger between two food delivery firms, Just Eat (British based) and Takeaway.com (Dutch based), creates one of the world's largest food delivery companies in an increasingly consolidated industry. Takeaway.com had to fight off rival bids from Prosus, the tech investment division of the South African internet group Naspers, by paying a 20% premium on its all-stock attempt. The merged company will be a significant competitor to Uber's food delivery business, which waits for approval to acquire Grubhub, and become a dominating force in the industry.

Stay-at-home orders during the Covid-19 pandemic have prompted the food delivery industry to experience unprecedented growth rates, which in turn stimulated the appetite for takeovers. Advocates of the deal hope that even as lockdown measures are gradually eased, the shift in consumer behaviour persists. This would enable sustained industry growth.

As a result of fierce competition, market players operate on the verge of profitability and require large infusions of cash to survive. The newly formed company raised about £630 million in outside funding by issuing shares and convertible bonds to withstand the margin compression they are facing.

“On August 5 2019, Just Eat PLC and Takeaway.com announced a recommended all-share combination, which will create one of the largest food delivery companies in the world, with scale, strategic vision, industry-leading capabilities, leading positions in attractive markets and a diversified geographic presence.”

Just Eat Q3 2019 Update

Company Details (Takeaway.com)

Takeaway.com is a food delivery company operating globally. It focuses on connecting 44,000 restaurants with consumers via an online hybrid marketplace. Customers order using the stationery online portal or mobile app, whereupon suppliers of Takeaway.com deliver the meal in exchange for a commission from the restaurant. Founded in 2000 and based in Amsterdam, it now operates in multiple European countries, as well as in Vietnam and Israel. Among others, Takeaway.com owns Delivery Hero Germany.

Founded in: 2000

Headquartered in: Amsterdam, Netherlands

CEO: Jitse Groen

Number of Employees: 2,672

Market Cap: £4,013m

EV: £4,187m

LTM Revenue: £364.92m

LTM EBITDA: £8.27m

LTM EV/Revenue: 11.47x

LTM EV/EBITDA: 506.29x

Company Details (Just Eat)

Just Eat is a leading online food delivery service founded in 2001 in Denmark and headquartered in London. The company enables its 26 million customers to search, place orders, and pay for food from local takeaway restaurants for pick up or delivery. Just Eat collaborates with around 100,000 restaurant partners in 13 countries, including the UK, Australia, New Zealand, Canada, and other European countries. Just Eat also has a stake in iFood in Mexico and Brazil.

Founded in: 2001

Headquartered in: London, UK

CEO: Peter Duffy

Number of Employees: 3,600

Market Cap: £5,858m

EV: £5,932.2m

LTM Revenue: £779.5m

LTM EBITDA: £166.5m

LTM EV/Revenue: 7.61x

LTM EV/EBITDA: 35.63x

Projections and Assumptions

Short-term Consequences

Together, Takeaway.com and Just Eat process over 360 million orders annually, corresponding to well above £6.6bn in monetary terms. Thus, the newly formed Just Eat Takeaway.com N.V. group immediately makes up one of the key players in the global food delivery industry. Due to Just Eat’s footprint in London, Takeaway.com will gain a significant market share in the UK, a market that grew nearly 20% in 2019. The concurrent global Covid-19 pandemic, which caused worldwide restaurant closings, enables the merged entity to profit from a strong increase in short-term demand. It remains to be seen, however, whether or not the current crisis will manifest a long-term shift in consumer behaviour favouring online food delivery.

The merger will immediately lead to annual cost savings of around £20m, mainly by centralising orders, improving procurement processes, and unifying brands. Additionally, the merged company will use its new outside funding to withstand low margins in the industry, pay down debts, focus on business development, and explore possible acquisitions in the European online food delivery market. The newly formed company is led by Takeaway.com CEO Jitse Groen, has its headquarters in Amsterdam, and is listed on the London Stock Exchange.

After the completion of the merger, Takeaway.com has announced the sale of Just Eat’s 33% stake in Brazil’s iFood, in which the rival bidder Prosus also invested. The company also said it would return about half of the net proceeds of the sale to shareholders of the combined group.

Long-term Upsides

The driving strategic rationale behind the merger between Just Eat and Takeaway.com is the large potential the companies have to capitalise on the increase in market share following the completion of the deal. The combined company will be one of the largest online food delivery platforms in the world.

Takeaway.com already occupies a significant space in the European food delivery marketplace and merging with Just Eat will help them capture some of the world’s largest food delivery markets, including the United Kingdom, Germany, the Netherlands, and Canada.

This will allow them to further capitalise on the opportunities available to market leaders as they can deploy their combined capital and resources to strengthen their competitive position.

Furthermore, combining their resources will provide them with greater operating leverage potential, and the possibility of increased revenues may lead to greater profitability. This would be due to the ability to achieve a high gross margin through the realisation of cost synergies.

Additionally, Takeaway.com's primary competitor in the bid for Just Eat, Naspers, was hoping the acquisition would serve as a major step in their journey to become the leading online food delivery business in the world. With Takeaway.com winning the transaction, they effectively have thrown Naspers off course in their plans for food delivery dominance. Due to this, Takeaway.com has killed two birds with one stone as they have expanded their business while simultaneously circumventing competition.

Risks and Uncertainties

The merger of Takeaway.com and Just Eat comes with a variety of challenges, especially surrounding the economic uncertainty of the Covid-19 pandemic. With the majority of people in quarantine and staying at home, the demand for the merged company’s delivery service will have greatly increased. Just as with any merger, there is a risk that the companies will not be able to successfully integrate, whether it be their cultures or technology. It is also still uncertain how fast Just Eat and Takeaway.com will be able to increase their scale and delivery force at this time. Failure to do so, may result in a loss of revenue due to a lack of delivery drivers and few restaurants being open for delivery. This may leave Taeaway.com and Just Eat vulnerable to the possibility of being overwhelmed by an increase in demand or outpaced by the competition.

With a possible merger between food delivery service giants Uber and Grubhub on the horizon, the newly merged Just Eat and Takeaway.com also face the possibility of stiff competition. Grubhub has already expanded beyond the US and into the UK in recent years, and Uber has offered its services in places such as Europe, Australia, and South America for years. At the time of writing, Uber and Grubhub have drawn closer to an agreement on the price of the merger which presents a very real threat to Just Eat and Takeaway’s business.

“Restrictive changes to UK migration policy have the potential to add further burdens to an existing skills and capacity shortage within the restaurant, takeaway and delivery industry. This could impact short-term industry performance but perhaps more importantly could impact the longer-term growth of our industry.”

Just Eat Annual Report