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Technology

Uber to acquire Postmates for $2.65B

Uber's board has approved the all-stock deal. It solidifies the company as a formidable player in the delivery wars.
Postmates Uber
Photo courtesy of Postmates

Seeking to bolster its position in a market that has become increasingly vital during the pandemic, ride-sharing company Uber plans to acquire third-party delivery service Postmates for $2.65 billion, the companies announced Monday. 

Bloomberg first reported the deal over the weekend. Uber will buy Postmates in an all-stock transaction, which will make Uber Eats the country's second-largest third-party delivery player, making it a more formidable rival to fellow delivery giants DoorDash and Grubhub. 

"Uber and Postmates have long shared a belief that platforms like ours can power much more than just food delivery, they can be a hugely important part of local commerce and communities, all the more important during crises like COVID-19," Uber CEO Dara Khosrowshahi said in a statement.

According to data from consumer analytics firm Second Measure, Postmates and Uber Eats together earned 30% of food delivery sales in May. DoorDash accounted for 45% and Grubhub for 23%.

Multiple reports last week said Postmates was weighing offers from Uber and an investment company as well as considering a public offering.

The deal is the second major deal involving a third-party delivery company in recent weeks, following the recently announced acquisition of Grubhub by the European company Just Eat, and is the first combination involving two of the four biggest players in the U.S. market.

For the companies, the combination is about riding the wave of sudden growth that has come since the pandemic kept consumers at home back in March.

Uber Eats’ sales doubled last quarter, executives told investors on Monday. The company sees the delivery of food, as well as groceries and other products, as a major growth area, and it doesn’t believe it will end even as the pandemic eases.

By contrast, the company’s “Rides” business has struggled as tourism declined, falling about 70%. Uber as a result has been looking to bolster its delivery business. It first targeted Grubhub, but talks fell apart in May amid regulatory concerns. It then turned its eyes on the smaller Postmates.

“Consumers were already shifting toward delivery,” Khosrowshahi told investors. “The pandemic has accelerated those trends. Eats is rapidly attracting new customers. We feel this shift is structural and will continue past the immediate crisis.”

Uber also believes that buying Postmates will help Eats get to profitability. Even though its revenue more than doubled in the first three months of 2020, Uber Eats adjusted earnings before interest, taxes, depreciation and amortization was a loss of $313 million in the first quarter, for instance.

Uber says that buying Postmates will speed the segment’s “path to profitability,” in part by generating $200 million in cost savings and allowing drivers to take on more orders at a time. “The business was getting much closer to profits,” Khosrowshahi said of Postmates. “With synergies, this will be a profitable deal for us.”

It also removes a competitor from a market that had, before the pandemic, pushed hard for new customers with price competition. Postmates was said to be among the more aggressive of those competitors as it sought to compete with the larger DoorDash, Grubhub and Uber Eats.

“We’ve always admired Postmates begrudgingly from afar,” Khosrowshahi said, noting that the company was able to attract new business despite “a much smaller capital base than a lot of its competition. They did it with aggressive tactics. They also built a great brand.”

The deal will give Uber Eats a stronger player out west, including key markets such as Los Angeles, while bolstering its competitive position in other markets in the U.S. Company executives also said that it would make things easier for restaurants, by reducing the number of tablets they have to use for delivery orders, for instance.

“This is a deal that’s going to be good for us, good for restaurants, and good for delivery people,” Khosrowshahi said.

UPDATE: This story has been updated to include information from an investor call on Monday.

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