Deliveroo avoids taking over DoorDash, but remains interested

Deliveroo has recently been the focus of US rival DoorDash’s takeover interest, as foreign investors continue to look for opportunities on the London Stock Exchange

Despite initial discussions, the potential deal fell through due to disagreements over the acquisition price.

DoorDash’s reported interest sent Deliveroo shares up 1.2% to 129p. Analysts at Jefferies suggest DoorDash’s move could just mark the start of further acquisition interest. “In this case, the talks failed,” the US bank said. “But the financial, industrial and strategic logic of an acquisition of Deliveroo is strong. We wouldn’t be surprised if similar headlines resurface in the short term. The key to unlocking a featured offer from Deliveroo is understanding the sensitivities of founder and CEO Will Shu. This may just be the beginning.”

DoorDash, a leading food delivery company listed in New York with a valuation of about $46 billion, was one of several U.S. bidders targeting British companies because of the valuation difference between its New York- and London-listed shares. Earlier this year, US-based GXO Logistics acquired Wiltshire-based transport company Wincanton for £762 million, with the aim of expanding into Europe.

Deliveroo, founded in 2013 by American-born former banker Will Shu, thrived during the pandemic as lockdowns boosted demand for home deliveries. However, the company has recently experienced a drop in orders due to the cost of living crisis. Despite these challenges, Deliveroo reported positive profits for the first time in March, with 2023 adjusted profits before interest, taxes and other charges reaching £85 million, compared to a loss of £45 million in 2022.

The company’s initial public offering (IPO) in April 2021 was particularly problematic, with shares falling sharply from a float price of 390p to around 282p on its first day of trading. Deliveroo has since been identified by Jefferies as a potential takeover target, as merger and acquisition (M&A) activity increases in the city. The bank suggests Deliveroo could benefit from consolidation in the technology sector, which could deliver economies of scale, higher returns on investment and better access to intellectual property rights.

Deliveroo still faces 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 Germany, Canada, Australia, France and Spain, among others. In April, Just Eat reported order growth of 1% to 60.3 million in Britain and Ireland, with price cuts to remain competitive, temporarily impacting Deliveroo’s share price.

As the market remains competitive and indicates DoorDash’s interest, Deliveroo could still be a target for future acquisitions. Investors and industry observers will be keeping a close eye on whether more suitors emerge and how Deliveroo addresses its strategic challenges and opportunities in the coming months.