DoorDash to buy Deliveroo for $3.9 billion to expand in Europe
(Reuters) – US food delivery giant DoorDash (NASDAQ: DASH) has announced plans to buy its UK-based rival Deliveroo (OTC: DROOF) for about 2.9 billion pounds ($3.85 billion). The deal is expected to help DoorDash strengthen its position in the European market and compete directly with giants such as Just Eat and Uber Eats.
The news was announced on Tuesday, with DoorDash confirming its offer to buy Deliveroo for 180 pence per share – the final price agreed after the two sides restarted negotiations last month. Deliveroo shares rose nearly 2% following the announcement, although they were still trading below the proposed price.
This is a strategic move by DoorDash to expand its scale, as consumers increasingly tighten their spending on food delivery services, which are considered a luxury during a period of prolonged inflation.
“There are too many companies competing for the same slice of the delivery pie – that’s unsustainable,” said Russ Mould, investment director at AJ Bell. “Only the strongest businesses can survive in the long term, by acquiring smaller competitors.”
In addition to this deal, DoorDash also revealed plans to acquire SevenRooms – a software company specializing in the hotel industry – for $ 1.2 billion, expanding its technology ecosystem serving the F&B industry.
Strengthening its position in Europe
The acquisition of Deliveroo will bring the UK and Ireland – Deliveroo’s two largest markets – into DoorDash’s portfolio, helping the company expand its footprint in Europe and compete more closely with regional rivals. CEO Tony Xu said the deal would “open a platform to scale up investments and launch new products in the European market.”
Deliveroo and DoorDash are expected to have a combined order value of $90 billion in 2024, with 7 million and 42 million monthly active users, respectively, according to their financial reports.
Deliveroo said it has secured commitments from investors holding around 15.4% of its shares, including founding CEO Will Shu, as well as investment funds such as Greenoaks and DST Global. However, analysts also noted the notable absence of largest shareholder Amazon (NASDAQ: AMZN) – which owns a 14.38% stake in Deliveroo – from the list of commitments.
“We still view Amazon as one of the most likely bidders for the deal,” according to analysts at Panmure Liberum.
Impact on the stock and investors
DoorDash shares on the Nasdaq fell 8.5% following the announcement, as the company forecast lower-than-expected second-quarter earnings. DoorDash said adjusted EBITDA would range from $600 million to $650 million, compared with the average analyst estimate of $627 million.
DoorDash said consumer demand remains strong, but warned of “potential changes in spending behavior.”
Meanwhile, Uber – the industry’s biggest rival – also announced on the same day that it had acquired an 85% stake in the food delivery business of Trendyol, a leading Turkish e-commerce company, for around $700 million.
If no other competitors join, the DoorDash-Deliveroo deal is unlikely to face regulatory hurdles as the two companies operate in the same market with little overlap.
Deliveroo founder Will Shu is expected to receive £172.4 million from the deal for his 6.4% stake – making him the third-largest shareholder.
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