Uber is set to buy Postmates, the food delivery start-up for $2.65 billion, in a bid to expand its food delivery business to meet the shortfall in revenue from its struggling ride-hailing company due to the Pandemic lockdowns.
Two people with knowledge of the acquisition told business wires that the all-stock deal will be announced Monday.
Uber already has an in-house food delivery subsidiary, Uber Eats, and Postmates will most likely be merged with it. Pierre-Dimitri Gore-Coty, Uber’s head of food delivery, will be the overall head of the food delivery services of Uber. Postmates Chief Executive Officer Bastian Lehmann and his team will stay on to manage Postmates as a separate service, another person said.
There was no statement yet from either Uber or Postmates.
There were earlier talks of DoorDash, the leading delivery service in the US, and Grubhub acquiring Postmates. There were also rumors of Uber Eats planning to buy-in GrubHub. But the deal never came through, and Grubhub was gobbled up by Just Eat Takeaway, a European delivery company for $7.3 billion.
Food delivery apps have taken off in the last few years with people becoming more digital savvy and an opportunity to get food delivered from their restaurant of choice at nominal rates.
The Covid-19 pandemic led to most restaurants turning to the alternative of takeaways with businesses closing down during the lockdowns. Uber Eats managed to recover some of its losses with delivery service in these difficult times.
There is intense competition among the food delivery businesses to get a share of the market. Quarterly revenue from restaurant food deliveries rose by more than 50% to $819 million yearly, reports Reuters.
"For aggregators, order sizes and driver supply dynamics are likely to revert over time. We think the new user acquisition and increased engagement trends are encouraging, though we're more skeptical about the persistence of bigger order sizes," writes Bernstein analyst Sara Senatore.
With this new acquisition, Uber Eats will have 37 percent of the food delivery market share in the US. The leader is still DoorDash with 45 percent, according to Edison Trends, a research firm specializing in spending trends.
Uber Eats is generating good reviews among investors. Recently, while announcing the latest job cuts at Uber, the CEO Dara Khosrowshahi said Uber needed to concentrate on Uber Eats and the cab ferrying business. Uber has withdrawn its 2020 financial guidance report saying that the Covid-19 coronavirus pandemic has made it difficult to predict how the market will playout for the company.
"Given the evolving nature of Covid-19 and the uncertainty it has caused for every industry in every part of the world, it is impossible to predict with precision the pandemic's cumulative impact on our future financial results," the company said in a statement.
In a call with analysts, Dara Khosrowshahi had assured investors that it had a cushion of nearly $4billion to see it through the crisis.
Postmates was valued by investors at $2.4 billion. It was founded in 2011, and raised nearly $900 million in funding and was planning to go public. Postmates started the trend of using part-time gig workers as delivery agents for anything that the consumer wanted to be delivered.