Delivery Hero to Acquire Majority Stake in Glovo: A Deep Dive

Delivery Hero to Increase Stake in Glovo

Germany-based Delivery Hero is poised to gain majority control of Glovo. This will occur through the acquisition of an additional 39.4% ownership in the Spanish delivery service, building upon its existing 44% stake.

The agreement was finalized during the holiday period, specifically on December 31st after 11 p.m. CET. This timing drew criticism from Spanish journalists.

Deal Announcement and Reaction

As noted by Michael McLoughlin of El Confidencial, the late announcement raised questions about the company’s priorities. He questioned if a lack of consideration for delivery personnel extended to the media.

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Analyzing the Acquisition

This transaction presents several noteworthy aspects. We will examine the current trend of consolidation within the on-demand startup sector, the strategic importance of geographic reach for both companies, and the reasons behind Glovo’s deviation from its initial plans for a public offering.

Delivery Hero is scheduled to host an investor call next week to discuss the details of the deal. They have proactively provided a presentation outlining the transaction, offering valuable insights for analysis.

Key Considerations

• The acquisition signifies a continued trend of consolidation in the competitive on-demand delivery market.
• Geographic expansion remains a crucial factor for success in this industry.
• Glovo’s decision to forgo an IPO warrants further investigation.

Delivery Hero’s increased investment demonstrates confidence in Glovo’s potential and its position within the European delivery landscape.

On-Demand Consolidation in the Delivery Sector

The recent agreement between DoorDash and Wolt, valued at approximately €7 billion (or $8.1 billion), provides crucial background for understanding the Delivery Hero-Glovo transaction. Wolt, originating in Finland, maintains a substantial presence across numerous countries.

TechCrunch highlighted that Wolt employed over 4,000 individuals in 23 countries at the time of the DoorDash acquisition.

Glovo’s Expansion Strategy

Glovo, similarly, operates in a diverse range of markets, a position it attained, in part, through strategic acquisitions. Interestingly, in 2021, Glovo purchased brands from Delivery Hero itself, with the Spanish firm paying €170 million for these assets.

However, Glovo’s acquisition activity didn't conclude in 2021.

Last September, TechCrunch reported that the company integrated two regional grocery picking and delivery services – Lola Market (Madrid-based) and Mercadão (Portugal) – into its operations, mirroring the model of Instacart.

Delivery Hero’s Strategic Move

Delivery Hero isn't simply acquiring a competitor within its existing geographic region. Rather, it's integrating a rival on-demand delivery company that has itself experienced growth through inorganic means.

Consequently, all of Glovo’s previous acquisitions and business dealings will now fall under the Delivery Hero umbrella.

Market Dynamics and Shifts

The on-demand delivery landscape isn't without its challenges. In late December, Delivery Hero announced its withdrawal from the German food delivery market and its intention to sell its Foodpanda Japan business.

This demonstrates the fluctuating success of different delivery services in various markets, and illustrates the rapid pace of change within the industry.

Despite these exits, Delivery Hero continued to expand, as TechCrunch observed, by acquiring a Danish food delivery company called Hungry, growing its operations in Slovakia, and gaining customers in Central America and the Caribbean through acquisitions.

The Significance of Geographic Reach

This raises a key question: how important is broad geographic distribution – or sprawl – for companies operating in the on-demand economy?

• The DoorDash-Wolt deal sets a precedent for consolidation.
• Glovo’s growth relied heavily on acquisitions.
• Delivery Hero is adapting to a dynamic market.

Global Reach and Strategic Acquisition

Glovo maintains a significant presence across numerous regions, functioning in over 1,300 cities situated within 25 countries spanning Europe, Central Asia, and Africa, as highlighted in the official announcement of the deal. Notably absent from this statement was the prior acquisition of Glovo’s Latin American divisions by Delivery Hero in 2020, a factor contributing to the limited geographical overlap between the two companies.

Prior to this transaction, Glovo had already strategically withdrawn from several Latin American markets, including Uruguay, Puerto Rico, Turkey, and Egypt. The Latin American operations ultimately acquired by Delivery Hero for a potential sum of up to €230 million encompassed eight nations: Argentina, Costa Rica, Ecuador, Honduras, Guatemala, Panama, Peru, and the Dominican Republic.

Focus on Core Markets

Following the sale, Glovo refocused its operations on Europe, Central Asia, and Africa, concentrating on markets where it consistently ranks as either the leading or second-leading provider. This strategic positioning is visually represented in the following graphic:

The pursuit of market leadership is a common ambition among delivery startups, and Glovo emphasizes its top position in 16 countries. However, the company also stresses a crucial point: achieving this status occurred “despite a later entry into the market compared to its competitors.”

Essentially, initial market entry is less important than securing a dominant market share within key regions—even if this necessitates exiting markets where achieving leadership proves challenging.

Beyond Food Delivery

Delivery Hero CEO Niklas Oestberg commended Glovo’s foresight in expanding beyond the confines of food delivery from its inception. He described the Spanish startup as “a multi-vertical play from the start,” as noted on Twitter. Glovo’s tagline, “Food delivery and more,” encapsulates this broader scope, with “more” encompassing “groceries, shops, pharmacies, anything!”

This diversification aligns with the burgeoning trend of quick commerce, often referred to as q-commerce. Companies like Zapp and Gopuff exemplify this trend, and Delivery Hero has taken note. The company spearheaded the Series C funding round for Gorillas, a Berlin-based operator of on-demand grocery delivery and dark stores, and has openly expressed its intention to prioritize investments in this sector.

Strategic Acquisition and Future Growth

Consequently, extending an acquisition offer to Glovo, in which it had already invested since 2018, was a natural progression. The key question remained whether Glovo would accept the offer, and at what valuation. Given Glovo’s reported platform sales reaching billions of euros, it represents a substantial business entity.

Why a Shift from Independence?

In the early months of 2021, Glovo publicly expressed a strong desire to remain independent and pursue its own strategic direction. A January report from Bloomberg clearly stated, “Glovo CEO Says Won’t Sell to Delivery Hero, Works Toward IPO.”

However, circumstances evolved. What prompted this change in direction?

Recent disclosures from Delivery Hero provide valuable insights into Glovo’s current standing. The company currently possesses the following key metrics:

• An annual base of 15 million active users.
• A network of 70,000 active couriers, alongside 130,000 monthly active partners.
• A gross transaction value run rate of €3 billion as of October 2021, generating €800 million in revenue.

These figures translate to a valuation of €2.3 billion, according to the companies involved, calculated on a “fully diluted and cash free and debt free basis” and subject to “certain adjustments.” Delivery Hero indicated the acquisition will be structured through a share exchange, aligning Glovo’s valuation with its own current market levels.

Essentially, the deal is being finalized at comparable financial terms to those of the acquiring entity. Furthermore, the transaction includes converting Glovo’s existing employee stock option program into Delivery Hero equity, potentially providing up to 7.2 million shares of liquidity to Spanish tech professionals. This resembles a significant return for early investors.

The reasons behind Glovo’s decision to forego an independent public offering are readily apparent. If the company determined that a higher gross merchandise value (GMV) multiple could be achieved through a partnership with Delivery Hero, a sale would effectively transform its current customer spending rate into a more substantial per-share value for its investors. The potential for increased competition with the larger, more established Delivery Hero, and the inevitable overlap in markets, may have also made the acquisition an attractive opportunity.

Another factor to consider is the recent performance of Deliveroo in the U.K. Its initial public offering last year was met with skepticism, and while it experienced some recovery, much of that gain has since been lost. The outlook for delivery service IPOs remains uncertain, particularly given increasing regulatory scrutiny regarding the employment status of delivery riders. Therefore, accepting the offer from Delivery Hero, exchanging illiquid stock for liquid shares, and finalizing the exit strategy simultaneously appears to be a prudent course of action.

The merger between Delivery Hero and Glovo represents the culmination of a lengthy period of consolidation, divestitures, and market activity within the industry. The ultimate outcome – a strategic alliance between the two companies – may be less surprising than initially perceived.