Report: Uber pursuing an acquisition of rival Postmates

Report: Uber pursuing an acquisition of rival Postmates
  • Several media outlets are reporting Uber is in talks to acquire Postmates.
  • Postmates is the smallest of the four food delivery national players.
  • One expert is questioning what Uber stands to benefit from the deal.

Ride-hailing and food delivery platform Uber Technologies Inc. (NYSE: UBER) is reportedly looking past its failed acquisition of GrubHub Inc (NYSE: GRUB) and is now eying privately owned Postmates, sources told The Wall Street Journal.

$2.6B price tag

Uber is in advanced talks to buy Postmates for $2.6 billion and an official announcement could come within days, the sources said. Postmates was shopping for a potential buyer since at least 2019 and simultaneously planning for an initial public offering.

In fact, Postmates was close to filing for an IPO and was eyeing a summer debut, the sources also said. But the latest revelations in the highly competitive food delivery space suggests a combination of the two is possible, but there is no certainty of a deal finalizing.

The New York Times similarly reported its sources are saying Uber presented an offer to acquire Postmates.

Uber feeling the pressure

Uber reportedly attempted to acquire rival public company GrubHub but it secured a higher price tag to sell itself to Europe’s Just Eat. The combination of the two would certainly result in synergies and cost savings so Uber could be feeling pressure to close a move it’s own.

But Postmates is the smallest of the four major delivery companies, valued at just $2.4 billion in 2019 when it raised $906 million. Postmates’ valuation was likely negatively impacted after a slew of unprofitable startups received unfavorable reception, especially after WeWork’s aborted IPO.

Even if that is the case, Postmates could still be overvalued at $2.6 billion because the “industry needs to consolidate,” Reuters BreakingViews Jennifer Saba told CNBC. The COVID-19 pandemic also helped push valuations higher as consumers were left with few options but to cook at home or order delivery.

As such, it isn’t necessarily vital for Uber to pursue an acquisition at this time, she said. 

Unclear how Uber benefits

Postmates is dominant mostly in Los Angeles and few other markets outside of California so it isn’t clear how Uber benefits, Saba said. Also, the regulatory process could prove to be difficult for Uber, especially with California regulators where it is already activity fighting with legislators over the pay classification of drivers.

“It does sort of look like that they are just trying to grasp at something,” Saba said.

So what’s next for the industry? According to Saba, “who knows what could happen.” But the environment could look even more uncertain as Just Eat shareholders could still vote against the GrubHub acquisition.

By Jayson Derrick
Jayson Derrick has been writing professionally about stocks since 2011. He is particularly interested in alternative investments, hedge funds, and activist investing. He is a big fan of NHL hockey and lives in Montreal, Canada with his wife and four year old daughter.
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