Uber Technologies Inc (NYSE:UBER) talks to acquire Postmates for around $2.6 billion. This comes weeks after the company lost on a deal to acquire another food delivery company, Grubhub.
Uber compensating drop in ride-hailing services with the acquisition of Postmates
According to sources familiar with the matter, the company could strike a deal in a matter of days or fall through. The acquisition could bolster the company’s Uber Eats segment as it seeks to complement its struggling ride-hailing segment. Despite food delivery not being profitable in recent weeks, there has been a surge in home deliveries as restaurants remain shut, and people stay at home due to COVID-19. Uber’s efforts in the food delivery segment have grown significantly during the pandemic with Uber Eats considered a bright spot for staying at home restrictions.
Dara Khosrowshahi, the CEO of Uber, stated that the ride-hailing business has significantly slowed due to the stay at home restrictions, but the Eats segment has seen a surge in demand. The CEO confirmed that the company’s ride-hailing business had declined 80% in April.
Meal delivery market very competitive
Although Postmates demonstrated popularity in the early stages, it has nevertheless faced growing competition in the space. This is the same challenge Uber faces because it is crowded, which has made it difficult to gain market share. Uber faces competition from the likes of Grubhub and DoorDash.
The industry is ready for consolidation, and early this year, Uber set to the merger with Grubhub, but the deal fell through last after the parties failed to reach an agreement on price. GrubHub was subsequently acquired for $7.3 billion by Dutch company, Just Eat Takeaway.com.
Over the past year, Postmates has held negotiations over the potential sale to GrubHub and DoorDash. The company accounts for 8% of deliveries in the US behind rivals such as DoorDash with 44% of the market share. Postmates have all options open, including a possible IPO that will see it debut on Wall Street before by this summer.