A half-dozen American food-delivery companies are battling for dominance.
Consolidation seems inevitable. The US doesn’t need so many venture-backed companies in an industry defined by low margins, similar services, and fickle customer loyalty. And yet no end has appeared in sight.
But Recode has learned that one of the most prominent of these startups, Postmates, has explored a sale instead of becoming a standalone public company, which it announced plans to do so in February.
Staring at a public market that has been unkind toward consumer IPOs like Lyft and Uber, Postmates in recent months has had persistent talks with many of the likeliest acquirers in the space, including DoorDash, Walmart, and Uber, which operates UberEats, according to multiple sources. The clearest sign that Postmates — which was expected to be the next hot consumer-industry IPO — has seriously considered a sale: It has been working with Qatalyst Partners, the boutique investment bank famous for selling tech companies, people familiar with the matter told Recode.
Postmates is trying to keep its options open: It has also been considering following through with its much-delayed IPO, or raising a private round of financing that could push its IPO even further out, these sources say.
A Postmates spokesperson said it disputed Recode’s reporting but declined to specify on the record what the company actually was disputing. The company pointed to Second Measure data that showed Postmates is growing faster than UberEats and GrubHub nationally, while remaining especially popular in places like Los Angeles. Postmates has about 10 percent of total market share across the US.
“Eventually, you’ll probably see some consolidation, and I think we always like to think a few steps ahead. Is there a super company that we could create that would make a lot of sense?” Postmates CFO Kristin Schaefer said in February, just before the company filed to go public. “But at the same, we don’t have to take that path.”
Why does this matter? Well, an acquisition could affect the prices that Americans pay for food delivery. On one hand, it could allow for dominant players like UberEats to achieve cost savings that would make your dinner cheaper. Or maybe it would remove needed competition and allow middlemen to raise your prices.
It could also shape the reinvigorated conversation around labor rights in Silicon Valley. Delivery startups like Postmates have drawn recent criticism for their relationships with couriers, who deliver more than food and technically are contractors rather than employees. That classification has been criticized by workers’ right groups because it deprives them of certain benefits that full-time employees enjoy. If Postmates sold to a competitor like DoorDash or Uber, both with their own controversial workers’ practices, the situation for their workforce of contractors might get worse rather than better.
And lastly, if Postmates were to sell, it would also reveal some aftershock of how Uber and Lyft’s disappointing IPOs are impacting the plans of other high-profile IPO prospects.
As of now, Postmates appears still slated to head public, albeit on a much-delayed schedule. One person briefed on Postmates’ plans said that it very much is trying to avoid an IPO and that its first choice is to be bought — if a deal can be arranged at the right price. Others close to the situation insist Postmates is “full-steam ahead” on preparing for an IPO.
Either way, the acquisition talks help explain why Postmates — five months after stating very publicly that it planned to IPO — has not visibly taken some of the steps required to pursue that action.
All this back-and-forth with potential acquirers comes amid signs that Postmates could have trouble on Wall Street. Some analysts who met with Postmates in recent months told others in the industry that they had concerns over the company’s financial footing, according to people familiar with the matter. Those concerns, however, were not shared with Postmates, its board or its bankers directly, and so the sources say it did not affect Postmates’ IPO timing.
One of Postmates’ IPO meetings with Wall Street, its modeling day, was also pushed back at least once this spring, a delay that made some investors and analysts “queasy,” according to one of those sources.
These would not be the first investors to raise concerns about the food-delivery sector, which has historically been considered to be one of the toughest businesses in online commerce. The companies’ independence has created a scattershot network of regional dominions, with companies like GrubHub dominant in Chicago and New York, where it owns Seamless, and with Hollywood-stamped Postmates practically a verb in Los Angeles.
So Postmates has been surveying and pursuing other options.
It’s not uncommon for a company to at least explore a sale even as it prepares to go public. Startups often will pursue multiple strategies at once, and sometimes they do sell at the last minute before they hit the public market.
Postmates and Qatalyst have also fielded some interest originating from potential acquirers, people familiar with the matter say. But in a small sector where nearly all of the competitors know one another intimately, it can be a thin line between any inbound interest and organic talks that emerge from dinners or drinks………Read More>>