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Just Eat’s GrubHub takeover marks latest major step in consolidation of takeaway delivery sector

The Grubhub deal is expected to make the firm the world's largest online food delivery group outside of China

GrubHub Inc - Just Eat’s GrubHub takeover marks latest major step in consolidation of takeaway delivery sector

The recently announced US$7.3bn all-share takeover of US firm GrubHub Inc (NYSE:GRUB) by Just Eat Takeaway.com (LON:JET) is the latest major step for a group that has seen its value surge at a breakneck pace since it the joined the market.

At its initial float on the London Stock Exchange on April 3 2014, Just Eat was valued at 260p per share, giving it a market cap of around £1.47bn. Since then, and following its combination with Dutch rival Takeaway.com earlier this year, its worth has ballooned to around £11.3bn with a share price of 7,626p at Wednesday’s close, an increase of around 2,833% in a little over six years.

READ: Just Eat Takeaway agrees $7.3bn takeover of Grubhub to enter US market

The surging popularity of online food ordering, as well as its strong presence in areas outside of London, has allowed Just Eat to stay ahead of its main competitors, notably Deliveroo and the UberEats arm of taxi app Uber Technologies Inc (NYSE:UBER), who so far have struggled to expand their presence in the UK market outside of the big cities.

The recent lockdown measures due to coronavirus, which has arguably made food delivery services more critical than ever, has also helped boost the industry and share prices for investors.

With the GrubHub merger, Just Eat is primed to be catapulted into the US market, having already begun operating in neighbouring Canada, and will make it the “largest online food delivery company outside China” according to the firm’s statement.

The deal may be particularly stinging for Uber, which had also been in talks with GrubHub and could have acquired an incredibly dominant market share in the US if a tie-up had succeeded. A merger could also have helped the company turn around its currently loss-making UberEats, which now will remain as a drain on profits and is unlikely to appease investors.

However, some have said that an Uber takeover of Grubhub may have been unlikely even without Just Eat’s intervention.

“An international suiter was always going be better and less troublesome for Grubhub”, said Share Centre investment research analyst Helal Miah, who added that any residual talks between Grubhub and Uber “look likely to fail given politicians dislike of the merger which brings about competition issues”.

Further consolidation likely

Ultimately, Just Eat’s purchase of Grubhub is viewed as more merger activity in a sector that has viewed such amalgamations as inevitable.

“Consolidation in this sector was always going to happen given the technological requirements and the economies of scale needed”, Miah said.

“This is an industry that is ripe for consolidation and in this crisis environment signing up customers and creating brand loyalty along with market share will be all-important”, the analyst added.

With Just Eat having taken the lead in the battle to expand and retain market share, Uber is now expected to look elsewhere for potential partners or acquisition targets, while Deliveroo, now backed by the Amazon Inc (NASDAQ:AMZN) juggernaut, may also begin looking for ways to shore up its market share.

Shares in Just Eat Takeaway.com ticked up 0.05% to 7,630p in late-morning trading on Thursday.

Quick facts: Just Eat Takeaway.com NV

Price: 7898 GBX

LSE:JET
Market: LSE
Market Cap: £11.76 billion
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