Contact: Scott Denne
GrubHub has topped off a series of snack-sized deals with its largest acquisition in four years as it seeks to fend off burgeoning competition. Its latest move, the $288m purchase of Yelp’s Eat24 business, shows the food delivery incumbent getting creative in its M&A strategy as it pushes to build out network effects among multiple metropolitan areas before bigger companies sidestep into its market.
Today’s deal values the target at $150m more than Yelp paid for the property two-and-a-half years ago and comes with a valuation that’s in the neighborhood of 3x annual revenue. (Neither company disclosed Eat24’s revenue, but its gross sales imply revenue of $90-120m.) According to 451 Research’s M&A KnowledgeBase, that’s well above the median trailing revenue multiple of 1.4x for a public company divestiture in the past 24 months – a premium that’s more impressive considering that Yelp will continue to benefit from delivery orders placed through its restaurant directory.
In addition to the $288m in cash, Yelp’s restaurant reviews will link to delivery options from Eat24 and GrubHub, in exchange for collecting a fee for each order. With its previous deal, the pickup of 27 food delivery markets from Groupon’s OrderUp, GrubHub executed a similar arrangement to integrate its products into the seller’s platform. The company has been a frequent acquirer, inking three transactions so far this year on top of five over the past two years. But now it needs its acquisitions to do more than get it into new markets. Forging partnerships like the one it’s pursuing with Yelp could help pull more orders through its service, which should attract more restaurants, which should attract more orders.
While GrubHub is likely the largest online restaurant delivery company in the US today, it’s still early days for this market. By its own reckoning, 88% of people have never ordered food delivery online. GrubHub needs to work fast to expand and become the largest source of food orders in the markets it serves as other companies see an opportunity to enter this sector through ancillary strengths – Square is attempting to get in through its point-of-sale systems, Uber used its fleet of drivers and logistical prowess to launch UberEats and Amazon, with its demonstrated ability to destroy competitors in coveted markets, recently launched a restaurant-ordering service of its own.
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