By AJ Tomas (University of Chicago) and Demi Akinjide, Saihejpal Ailwadhi, Ben Fobel, Zac greenberg and Will Sergent (University of Bristol)
Overview of the deal
Acquirer: Uber Technologies (NYSE:UBER)
Implied Equity Value: Not Disclosed
Total Transaction Size: $1.1 billion
Announcement Date: 2nd February 2021
Expected Close Date: Expected to close in the first half of 2021
Acquirer advisor: Not Disclosed
Target advisor: Not Disclosed
Having agreed on a $1.1 billion cash and stock Drizly takeover, Uber attempts to further diversify its product portfolio. It is expected that Uber would finance 10% of the transaction in cash, with the remainder going towards common stock. Given this, Drizly would become a subsidiary of Uber by complementing its services within the UberEats App, whilst also operating its own app. As a result, this transaction would allow Uber to provide even greater value to consumers with benefits on Drizly.
“Cory and his amazing team have built Drizly into an incredible success story, profitably growing gross bookings more than 300 per cent year-over-year,” said Dara Khosrowshahi, Uber’s chief executive.
Company Details: (Acquirer - Uber)
Uber Technologies, Inc. is a multinational ride-hailing company operating in more than 80 countries worldwide. With 110 million users estimated in 2019, Uber is offering peer-to-peer ridesharing, ride-hailing service, shared electric bikes or scooters, and food delivery service under the name of Uber Eats. Uber Eats currently holds 24% of the US domestic food delivery market.
Founded in: 2009
Co-Founders: Travis Kalanick, Garrett Camp
CEO: Dara Khosrowshahi
Number of employees: 26,900
Market Cap: $112.25bn (as of 16/02/2020)
EV: $112.65bn (as of 16/02/2020)
LTM Revenue: $11.14
LTM EBITDA: -$4.29bn
LTM EV/EBITDA: $-26.27
Company Details: (Target - Drizly)
Drizly is an e-commerce marketplace that facilitates the delivery of alcoholic beverages. The company partners with retailers and producers to deliver alcohol to consumers within a 60 minute time frame. Through their mobile platform, Drizzly currently serves over 100 million customers in more than 1400 cities across North America. Like Uber’s delivery business, the pandemic has proven to be a strong tailwind with gross bookings growing profitably by 300% on a year-on-year basis in 2020.
Founded in: 2013
Co-Founders: Nick Rellas, Justin Robinson, Spencer Frazier
CEO/CIO: Cory Rellas
Number of employees: 85
Last Financing Round: $50M Series C at a $75M Post-Money valuation
Projections and Assumptions
Though Uber’s traditional ride business has been heavily impacted by restrictions introduced to curb COVID-19 infections, Uber’s food delivery business, Uber Eats, has thrived. With Uber announcing its intention to incorporate Drizly into the Uber Eat’s App, Uber hopes to diversify into a complementary industry and capitalise on the growth of the delivery drinks business due to the COVID-19 pandemic. The acquisition offers several key benefits to Drizly with the alcohol e-commerce marketplace gaining access to the world’s largest food delivery and ridesharing platform. It is hoped that through this integration merchants on Drizly will benefit from Uber’s in-class routing technology and wide consumer base facilitating the expansion of Drizly’s audience and geographic presence.
As Uber CEO Dara Khosrowshahi mentioned in a recent interview with Kara Swisher, “...you have to decide what you are going to be great at. If you are not going to be great at it, then you should not be in the business.” Acquiring Drizly further signals that Uber is doubling down on their strategy to become the leading last mile, “next hour,” deliverer in the networked economy. The company has honed in on their core competencies, divesting out of moonshot projects such as autonomous driving, selling ATG Technologies to Aurora for $4 billion in 2019. More importantly, they have expanded the scope of their delivery, moving into groceries, consumer healthcare, and now bolstering their alcoholic beverages offerings on Uber Eats.
In the midst of the pandemic, Uber’s delivery business has continued its strong performance as the current stay-at-home situation has proven to be a favorable tailwind. In the 3rd Quarter of 2020, Delivery Gross Bookings grew 135% year-over-year on a constant currency basis. Integrating Drizly onto Uber Eats while still allowing the independent operation of their application will be beneficial for the top line growth of Uber’s delivery business. Given that the last mile, next hour delivery market in the highly networked economy has a winner take all dynamic, Uber hopes that the expansion in booking volumes through acquisitions like Drizly, and in a period with strong macroeconomic tailwinds, will ultimately tip the market in their favor. Consequently, this puts Uber in a favorable position to capture most of the value in the market.
Risks and Uncertainties
One of the main reasons for this transaction, it would seem, is for Uber to expand its delivery services that have flourished during the global pandemic. Revenue from Uber’s food delivery business Eats surpassed rides revenue for the first time in the second quarter of 2020. Ever since, Uber’s strategy has been to strengthen, expand and develop this thriving branch. Uber has completed acquisitions other than Drizly such as Postmates in order to execute this goal. The overarching risk surrounding this deal and the aforementioned strategy is that it is near-sighted. Uber will benefit in the short run as stay-at-home stocks prosper but how will Uber cope during the transition out of the pandemic? Will this deal prove profitable when the demand decreases? It is unclear how far we are from things returning to normal. However, we saw in November of last year how damaging positive vaccine news can be for stay-at-home stocks like Zoom, Netflix and Amazon. Going forward Uber will have to be wary of these updates and adapt accordingly.
"By bringing Drizly into the Uber family, we can accelerate that trajectory by exposing Drizly to the Uber audience and expanding its geographic presence into our global footprint in the years ahead," Uber CEO Dara Khosrowshahi