Deliveroo has recently been the focus of takeover interest from American rival DoorDash, as overseas investors continue to seek opportunities on the London Stock Exchange
Despite initial talks, the potential deal fell through due to disagreements over the acquisition price.
The reported interest from DoorDash caused Deliveroo’s shares to rise by 1.2% to 129p. Analysts at Jefferies suggest that DoorDash’s move may only mark the beginning of further takeover interest. “In this instance, the talks have failed,” the US bank stated. “But the financial, industrial, and strategic logic of a Deliveroo takeover is strong. We would not be surprised to see similar headlines re-emerge in the short term. The key to unlocking a recommended offer from Deliveroo is understanding the sensibilities of founder and CEO Will Shu. This may only be the start.”
DoorDash, a prominent food delivery firm listed in New York with a valuation of about $46 billion, has been among several US bidders targeting UK companies due to the valuation gap between New York and London-listed stocks. Earlier this year, US-based GXO Logistics acquired Wiltshire-based transport company Wincanton for £762 million, aiming to expand into Europe.
Deliveroo, founded in 2013 by American-born former banker Will Shu, thrived during the pandemic when lockdowns boosted home delivery demand. However, the company has faced a decline in orders more recently due to the cost of living crisis. Despite these challenges, Deliveroo reported positive earnings for the first time in March, with adjusted earnings before interest, tax, and other charges reaching £85 million for 2023, compared to a loss of £45 million in 2022.
The company’s initial public offering (IPO) in April 2021 was notably problematic, with shares dropping sharply from a float price of 390p to around 282p on the first day of trading. Deliveroo has since been identified by Jefferies as a potential takeover target, as mergers and acquisitions (M&A) activity increases in the City. The bank suggests that Deliveroo could benefit from consolidation in the technology sector, which could provide economies of scale, higher returns on investment, and greater access to intellectual property rights.
Deliveroo continues to face stiff competition from Uber Eats and Just Eat Takeaway.com. Just Eat, formed from the merger of Just Eat and Takeaway.com, is now the largest food delivery group in Europe with operations in countries including Germany, Canada, Australia, France, and Spain. In April, Just Eat reported order growth of 1% to 60.3 million across the UK and Ireland, applying price cuts to stay competitive, which temporarily impacted Deliveroo’s share price.
As the market remains competitive and the interest from DoorDash indicates, Deliveroo might still be a target for future acquisitions. Investors and industry observers will be watching closely to see if more suitors emerge and how Deliveroo navigates its strategic challenges and opportunities in the coming months.
