GrubHub acquires LA Bite in consolidation wave

Author: Edward Price | Published: 6 May 2016
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

Food delivery company GrubHub's acquisition of LA Bite, which closed yesterday, is the beginning of a wave of fast consolidations in the industry, according to counsel.

The acquisition was a straight stock purchase of multiple entities for cash, which counsel report at $100 million. Counsel say this transaction - along with other recent similar deals - is a sign of things to come.

“There’s going to be a large consolidation in the restaurant delivery business,” said Alexander Lee, partner at Paul Hastings, who advised LA Bite.

Acquisitions in the food delivery business are not new phenomena. Like any logistics-based industry, it often makes sense to combine existing delivery networks and companies in pursuit of a competitive edge. But according to counsel, there’s now a new and interesting angle: fresh market players are thinking about entering the sector.

KEY TAKEAWAYS

  • GrubHub, a major US food delivery company, has acquired LA Bite, a similar, smaller Los Angeles-based company;
  • A straight stock purchase for cash, at $100 million dollars, the acquisition involved tax planning and the purchase of multiple entities;
  • Amazon and Uber look set to enter the food delivery industry, applying logistic weight;
  • Counsel who worked on the deal predict the industry will undergo a wave of consolidations.

“Uber and Amazon have stated their intention to move into the food delivery space,” said Claudia Simon, partner at Paul Hastings who also worked on the LA Bite acquisition.

It is significant that those new players are taxi firm Uber and online shopping giant Amazon. Both have incredible logistic clout and so are forcing existing players both to consider their own future and ask important questions about whether they can hold, or even want to hold, their local market share for long.

“A company like Amazon is an 800lb gorilla and Uber has ways of getting into markets. The entire restaurant industry is in this reactive mode,” said Lee.

As a result, more consolidations are coming and GrubHub, a public company, appears to be leading the way. The company’s other significant acquisitions recently came in March, when it acquired Restaurants on the Run. A public company making three acquisitions in one year is a clear sign of market consolidation.

Alexander Lee, Paul Hastings
Alexander Lee, Paul Hastings

“GrubHub has been aggressively acquiring delivery services in strategic markets to solidify and protect their position,” said Simon. And that aggression is having knock-on effects. “They are fighting for turf – and now the others will also consolidate, or sell to the big guys, or indeed sell out to Uber and Amazon,” said Lee.

The overall effect will be that smaller companies have to make a choice: sell now, or fail later.

“Regional companies out there, those that have really good niche markets, but no national presence? Basically they will shop themselves. There’s been a spate of M&A activity. They have to strike while the iron is hot,” Lee said.

Warring rivals

The restaurant business is notoriously tough, but its delivery offshoot is tougher. “The Game of Thrones is a perfect analogy. You play the Game of Thrones or you die,” said Lee.

“You’re going to either buy up, and become the kingpin, or you’re going to die. The Game of Thrones has begun and I think it spells doom for many companies that aren’t willing to play the game,” Lee said.

Many companies are willing to play, including LA Bite itself. In 2014 and 2015, LA Bite made acquisitions of its own, buying Waiters on Wheels in San Francisco and Bite Commissary, as well as Bite Houston.

“Already, the kingpin in the LA market is doing acquisitions in San Francisco and Texas. Then GrubHub comes along and says we’re going to buy you all,” said Lee.


“The Game of Thrones has begun”


“On our side, there were a number of separate companies that made up the LA Bite group,” said Amy Lawrence, associate at Paul Hastings, also worked on the transaction.

“There was some tax planning required to combine the companies into a package that would be more attractive to GrubHub and would better facilitate the transaction,” Lawrence said.

So, who will win the food delivery Game of Thrones? And where will the US food delivery market end up? “If I could predict these things, I’d be sipping margaritas in Bermuda right now,” said Lee.

Tear sheet

GrubHub's acquisition of LA Bite closed on May 5. Paul Hastings advised LA Bite, while Vedder Price advised GrubHub.

See also

M&A counsel positive about 2016

Mergers and Acquisitions Report 2016

M&A annual review