Grubhub may be bought by Uber and the timing might be just right

The time may be right for the wheeling and dealing team at Grubhub to sign off on its most important transaction in its 16-year plus history.

A transformational combination with rival Uber Eats.

Grubhub shares surged 27% Tuesday on a report from Bloomberg it will combine in an all-cash deal with Uber Eats. A spokesperson for Grubhub declined to comment to Yahoo Finance. Uber spokesperson Matthew Wing didn’t return Yahoo Finance’s request for comment.

The timing of a deal — or if it will go through at all — is unclear.

Consolidation in the third-party food delivery space has been talked about on Wall Street for some time as a means to gain the scale necessary to drive healthy, sustainable profits. Grubhub has always been viewed as the consolidator because of its past deal for Seamless and relatively solid balance sheet. But founder and CEO Matt Maloney has told Yahoo Finance repeatedly in recent months he was not actively pursuing a large deal.

“Everyone is very fixated on consolidation. It’s not pre-ordained. There is no reason that two is better than four or five. What we have proven is that you can successfully buy scale, but you aren’t going to buy scale at an obscene price. It has to be accretive to our shareholders. If there is an opportunity to expand our scale and better leverage our delivery, loyalty and sales infrastructure and product and engineering of course we would do it,” Maloney said in early February.

Added Maloney, “I am not staying up at night dreaming about consolidation. I am staying up at night thinking about how we execute better for our existing restaurant partners and be as competitive as possible. We have done a really good job at that.”

NEW YORK, NY – MAY 03: A Grubhub delivery person checks his phone during the coronavirus pandemic on May 3, 2020 in New York City. COVID-19 has spread to most countries around the world, claiming over 247,000 lives with over 3.5 million infections reported. (Photo by Cindy Ord/Getty Images)

But that was before the COVID-19 pandemic laid a beatdown on the U.S. restaurant industry, most specifically the small mom and pop chains that Grubhub has relied on for years. The downturn in the industry sent Grubhub’s stock down to a 52-week low in late March. Jefferies points out Grubhub’s stock currently trades towards the lower end of premiums paid in other third-party delivery deals.

It’s likely Maloney believes the market isn’t giving Grubhub the proper valuation today for the post COVID-19 world where food delivery will be even more important. And to service larger quantities of diners profitably — albeit from large fast food players or independent chains — Maloney probably recognizes it’s best to join forces with behemoth Uber Eats.

“You’re seeing millions of diners try delivery platforms for the first time as they’re locked inside their houses. And I think you’re seeing restaurants realize the benefits we bring in terms of higher efficiency, better products, tighter integration, for us, at least, a really strong loyalty platform. So I think you’re seeing the realization that our industry is extremely important, and it will be forever,” Maloney said on a May 7 earnings call.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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