Germany’s Delivery Hero is set to become Glovo’s majority shareholder following a deal to acquire an additional 39.4% stake of the Spanish delivery startup, of which it already held 44%.
We learned of the deal over the holidays, but you’ll be excused if you missed the news when it broke — the deal was announced on December 31 after 11 p.m. CET, much to the annoyance of Spanish reporters. “If they have no consideration for their delivery workers, [why would they have any] for the press?” El Confidencial’s Michael McLoughlin ironized on Twitter.
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But let’s not let inside baseball get in the way: The transaction is an interesting piece of news from a number of perspectives. This morning, we’ll dig into a number of them, including the current pace of on-demand startup consolidation, the power of geographic expansion in the two companies’ market and why Glovo didn’t go public as it once targeted.
Delivery Hero has a call next week with investors regarding the deal, but it was kind enough to drop a short presentation on the transaction, so we have extra ammo to play with. Let’s get into it!
On-demand consolidation
The key historical context for the Delivery Hero-Glovo deal is DoorDash’s recent agreement to buy food delivery company Wolt for €7 billion, or around $8.1 billion. Wolt is a Finnish company, but with a wide geographic footprint. At the time of the DoorDash deal, TechCrunch wrote that Wolt “has over 4,000 employees across 23 countries.”
Glovo is also active in a host of markets, a feat that it notably achieved at least in part thanks to acquisitions. The company bought brands from, of all companies, Delivery Hero in 2021, when the Spanish company acquired brands from its new parent company for €170 million. But that was not the end of Glovo’s 2021 deal spree.
TechCrunch reported last September that the company acquired “two regional ‘Instacart-style’ grocery picking and delivery startups, Madrid-based Lola Market and Portugal’s Mercadão.”
Delivery Hero is not merely buying another company in its space that is present on its home continent. Instead, Delivery Hero is buying a rival on-demand delivery company that itself has grown inorganically. Thanks to the recently announced combination, all of Glovo’s deal-making will roll into Delivery Hero.
But not all things are smooth in the delivery world. In late December, Delivery Hero announced that it was backing out of the German market for food delivery and that it intends to divest its Foodpanda Japan business. Which markets will work for different delivery services is fluid, then; Delivery Hero has been in and out of the German market for food delivery for some time now, detailing just how rapidly the business landscape for such services can shift.
Still, as TechCrunch noted, the Delivery Hero market exits came after it “picked up a Danish food delivery biz called Hungry; expanded in Slovakia; and grabbed customers in Central American and the Caribbean via acquisition.”
How, then, should we think about the importance of geographic spread — sprawl? — when it comes to on-demand companies?
Around the world
Glovo “has a complementary footprint to Delivery Hero, operating in over 1,300 cities in 25 countries across Europe, Central Asia and Africa,” the deal’s press release noted. What it didn’t mention, however, is one of the reasons why there is little overlap between these footprints: Delivery Hero bought Glovo’s Latin American operations in 2020.
At the time, Glovo had recently exited two Latin American markets, Uruguay and Puerto Rico, alongside Turkey and Egypt. The Latin American operations for which Delivery Hero agreed to pay up to €230 million referred to eight countries: Argentina, Costa Rica, Ecuador, Honduras, Guatemala, Panama, Peru and the Dominican Republic.
Following the deal, Glovo became centered on European Central Asia and Africa, in markets in which it is usually the No. 1 or 2 player, as summed up in this slide:
Image Credits: Glovo and Delivery Hero
Aiming for leadership is a recurring theme when it comes to delivery startups, so it’s no surprise that Glovo boasts about its pole position in 16 countries. But interestingly, the press release also insists on another fact: That it achieved this milestone “despite having launched a number of years later than their peers.”
In other words, being somewhere first is not what matters. What matters is to have a larger market share than competitors in one’s key markets — even if it means dropping out of markets where this leadership is harder to achieve.
However, Delivery Hero CEO Niklas Oestberg praised Glovo for thinking beyond food delivery from day one. The Spanish startup was “a multi-vertical play from the start,” he noted on Twitter. “Food delivery and more,” its tagline promises — with “more” meaning “groceries, shops, pharmacies, anything!”
This focus beyond restaurants put Glovo in line with a very hot trend: quick commerce, or q-commerce. Its rise is exemplified by companies such as Zapp and Gopuff, and Delivery Hero took notice. It led the giant Series C round of Berlin-based on-demand grocery delivery and dark store operator Gorillas, and made no mystery of its desire to shift investments toward this vertical.
To do so, it was natural to extend an acquisition offer to Glovo, which it has backed since 2018. What was unknown, however, was whether Glovo would say yes, and at what price. After all, it now reports platform sales in the billions of euros, so it’s hardly a small business.
Why not go public?
Back in early 2021, Glovo was pretty insistent that it wanted to stay indie and chart its own path. A Bloomberg headline from January of last year is clear: “Glovo CEO Says Won’t Sell to Delivery Hero, Works Toward IPO.”
So what happened?
We have a little insight into Glovo thanks to today’s release. From Delivery Hero, Glovo in its present form has the following:
- 15 million “active users” on an annual basis.
- 70,000 “active couriers” and “130,000 monthly active partners.”
- An October, 2021-set gross transaction value “run rate” of €3 billion, and €800 million in revenue.
All that is worth €2.3 billion, per the companies, “before certain adjustments” and calculated on a “fully diluted and cash free and debt free basis.” Delivery Hero said that it “will issue its own shares to the sellers at a fixed exchange ratio that implies a GMV multiple valuation of Glovo in line with Delivery Hero’s current trading levels,” notably.
So the deal is being done at roughly similar economics to what the acquiring company currently sports. (The transaction will also convert the “Glovo employee stock option program” into Delivery Hero equity, possibly putting up to 7.2 million shares worth of liquid currency into the pockets of a host of Spanish tech workers. That smells like angel investing money to us.)
Why Glovo did not go public on its own is therefore not impossible to guess: If the company saw that it could earn a greater GMV multiple by pairing up with Delivery Hero than it could on its own, selling would essentially allow Glovo to convert its current customer spend rate into a stronger per-share value for its shareholders. Toss in the possibility of having to compete with the larger, more valuable Delivery Hero — growing companies will see more overlap over time — and the exit could have simply been too choice to pass up.
There’s another wrinkle to consider. Recall that U.K.’s Deliveroo went public last year to the sound of raspberries. The company did recover somewhat in the latter quarters of 2021 but has since given back much of its regained value. The fate of delivery IPOs, then, is not exactly secure, especially when regulators are less and less willing to overlook their riders’ employment status. So, why not take the Delivery Hero check, trade illiquid stock for liquid shares and wrap up the exit point all at once?
The Delivery Hero-Glovo tie-up is the final chapter in a long tale of combinations, divestitures, market entrances and market exits. That the last page was the two companies deciding to just team up is perhaps less of a twist ending than we thought at first blush.