Uber in Talks to Buy Postmates for $2.6B
The deal would mean diversity for Uber and consolidation in the food delivery industry
Ride hailing company Uber is reportedly in talks to purchase its rival Postmates. The deal would be for $2.6 billion. It hasn’t been officially announced yet, but according to a report in the New York Times, it could be finalized as early as Monday of this coming week.
This makes sense a lot of ways. The delivery service industry is experiencing rapid growth and an increase in interest, largely as a result of Covid-19. There are also a lot of players in the industry, including small players (Postmates, previously Cavier, Grubhub, etc.) and several larger players (Doordash, Uber). When you see those dynamics in an industry, you expect to see consolidation and mergers.
In particular, you expect to see companies with more capital and a larger global footprint buy up smaller rivals. This is what we’re seeing with the Uber and Postmates deal. A similar dynamic applied with larger rival Doordash purchased high-end food service Caviar in 2019.
Larger players are snapping up smaller ones for their customer lists, drivers/operators (many of whom are independent contractors and challenging to recruit), and in some cases for their technologies.
The deal makes a lot of sense for Uber at the moment, too. With the Covid-19 coronavirus making customers weary of driving with strangers, Uber has seen up to an 80% drop in the revenue from their ride hailing division, which remains what they’re most known for.
Uber eats has been the shining star in Uber’s brand during the pandemic. With Covid-19 and a major increase in use of food delivery services, food delivery is suddenly a much more compelling piece of Uber’s overall picture.
We’ve seen Uber diversify in other ways, too. These include its large investment in scooter rental service Lime. Both the potential Postmates deal and these other investments are geared towards helping Uber move away from its challenged ride-hailing core.
The deal would likely still be subject to review and approval, and is not yet final (or even confirmed publicly). But if it does go forward, it would be another example of consolidation in the food delivery space, and another example of Uber expanding its brand. We expect both these trends to continue — especially as Covid-19 continues to affect both industries.