15th Dec 2016 12:05
LONDON (Alliance News) - FTSE 250-listed Just Eat PLC will take over even more of the UK online takeaway delivery market after announcing plans to buy direct rival hungryhouse Holdings Ltd on Thursday.
hungryhouse, which operates solely in the UK, is Just Eat's biggest direct competitor in the UK market and the second biggest online takeaway delivery company after Just Eat, meaning the acquisition will remove the FTSE 250 firm's keenest rival from the sector.
Just Eat also faces competition from takeaway delivery service Deliveroo, although it operates a slightly different operating model from Just Eat and hungryhouse.
Deliveroo employs a fleet of drivers to deliver meals itself, whereas Just Eat and hungryhouse operate online portals by which customers can order takeaways from local restaurants, but they do not handle the deliver themselves.
According to Just Eat, the merger will significantly benefit its restaurant partners and customers by creating an enlarged customer base and increasing the breadth of choice on offer. In addition, the combination of the two businesses will generate "compelling economic benefits of scale, with high operating leverage driving material synergies".
In 2017, Just Eat expects hungryhouse to generate earnings before interest, tax, depreciation and amortisation of between GBP12 million and GBP15 million, excluding a one-off exceptional transaction and integration cost of GBP1 million. The acquisition is expected to be earnings per share accretive in the first full year of ownership.
In 2015, hungryhouse posted a pretax loss of GBP13.1 million and had gross assets of GBP5.0 million on December 31.
Just Eat will pay hungryhouse's current owner Delivery Hero Holding GmbH an initial GBP200.0 million in cash for the takeover, with a further GBP40.0 million payable subject to hungryhouse's performance between signing and completion of the transaction.
"The UK has long been an engine of growth for Just Eat. While we have significantly expanded internationally in recent years, we have remained focused on building a high growth, sustainably profitable business domestically. Through this transaction, we would extend our market presence in the UK and sustain high levels of growth given the considerable opportunity in this market," Chief Executive David Buttress said in a statement.
Berenberg said the hungryhouse deal "is extremely complimentary" to Just Eat, due to hungryhouse having a largely fixed cost base and "exciting" Ebitda margin.
The bank noted that while around 25% of orders could be lost in transition, due to some hungryhouse customers not choosing to migrate to Just Eat, the remaining revenue could come through to Just Eat at a 75% margin given all duplicate costs can be eliminated.
In addition, Berenberg expects less intensive brand competition to result in less marketing expenditure.
The hungryhouse acquisition requires regulatory approval by the UK Competition & Markets Authority. Berenberg said approval is "likely" but will "take some time".
Separately, Just Eat said it is also buying Canadian online food delivery firm SkipTheDishes for an initial CAD110 million. SkipTheDishes is the second biggest online food delivery company in Canada, behind Just Eat.
CAD100 million is immediately payable in cash and CAD10 million is payable in the form of 1 million Just Eat shares within 12 months of completion. A further CAD90 million may also be payable, subject to certain financial targets being met.
According to Just Eat, SkipTheDishes is expected to generate revenue of CAD23.5 million in 2016. It has a selection of more than 2,900 restaurants and 350,000 active customers. In the 10 months to October, orders grew by 186% year-on-year.
Just Eat expects the acquisition, net of one-off exceptional transaction and integration costs, to be moderately dilutive to earnings per share in 2017 and 2018, before being earnings per share accretive thereafter.
"The acquisition of SkipTheDishes will materially strengthen Just Eat's number one position in Canada. Canada is a phenomenally exciting country for online food delivery, with significant runway for growth and a clear opportunity to drive channel shift. SkipTheDishes' outstanding team, technological know-how and operational excellence has enabled it to develop a business model well-suited to Canada's unique market conditions. It will complement our existing operations so that Just Eat is best-placed to address this fast-growing market," CEO Buttress said.
Berenberg noted that geographical overlap between Just Eat and SkipTheDishes is "limited", given that Just Eat is stronger in eastern Canada while SkipTheDishes dominates the central regions.
The Canadian deal is the latest in a series of overseas acquisitions Just Eat has made this year. In February, it bought Spanish takeaway food business La Nevera Roja and Italian PizzaBo/hellofood Italy from Rocket Internet, and hellofood Brazil and hellofood Mexico from foodpanda for EUR125.0 million in total.
This came after Just Eat in 2014 merged its Brazilian RestauranteWeb business with online restaurant delivery company iFood.com Agencia de Restaurantes Online. The merged company was renamed as IF-JE Participacoes Ltda and is a joint venture between Just Eat and iFood's existing shareholders.
"We remain of the view that Just Eat is extremely well-positioned to take advantage of the ongoing migration of takeaway orders from offline to online. Today's transactions only help to increase the likelihood of the company's success, we believe," Berenberg said on Thursday.
Shares in Just Eat were trading down 1.2% at 590.50 pence on Thursday.
By Karolina Kaminska; [email protected]; @KarolinaAllNews
Copyright 2016 Alliance News Limited. All Rights Reserved.
Related Shares:
Just Eat