How to Spot a Rising Star: Insights from a €45B Food Delivery Rollup

Delivery Hero (DH) is a global leader in online food delivery. In 2022, it reported a Gross Merchandise Volume of €45B. DH is one of few European technology companies that have achieved real global scale. And M&A has been at the core of its expansion. DH has done c.170 transactions since its IPO in 2017.

Martin Vaivods started his career at the Telecoms and Technology M&A practice at Lazard Frères. He then moved onto finance leadership positions in the food delivery space. He spent five years in the Global Strategy Team of DH, focusing on M&A. 

The Meteoric Rise of Online Food Delivery

The food delivery space saw its meteoric rise in the last decade – and shows no sign of slowing down. Worldwide GMV is forecast to reach almost $400B this year, according to Statista, up 9% YoY and more than double its pre COVID levels

The industry started to boom and expand to every corner of the world. Consumers adopted smartphones and demanded increased convenience. In response, entrepreneurs built food delivery services in almost every city. The growth of food delivery companies created the conditions for lots of deal-making. Unicorns, IPOs and multi-billion mega-mergers captured the headlines. But companies with consolidation strategies also executed a long list of unheralded transactions. 

I spent a lot of time exploring and building systems for deal origination in the space. At DH, we considered transactions across c.50 different countries at any given time. But our time and resources were always scarce. We could see the drawbacks of unstructured M&A origination when we were busy on big high priority projects. Other people would pitch us smaller deals that were still strategic and important. In such situations, we often would have wanted to engage the targets earlier and on better terms. Thus we structured our deal origination efforts over time. I will outline some of the key insights from this process in the rest of this blog post.

Origination Challenges in Food Delivery

The hardest part of origination was not identifying the universe of potential targets. It is impossible for food delivery apps to grow for long while staying low-key. The hardest part of origination was knowing when to engage with potential up-and-comers.

An acquirer’s dream is to buy a promising company right at the start of its rise before other bidders spot it. Even before the target company itself understands its new strategic and financial options. An acquirer’s nightmare is having to join a competitive auction. In the worst cases acquirers must pay exorbitant prices due to strategic considerations. 

The time that separates the dream and nightmare scenarios could be as short as a few months. We would hear about a cool new entrant who was serving a couple of trendy neighborhoods in one of our cities. Then we would find ourselves speaking to the entrant’s investment bankers. The bankers would tell us that they had high bids from affluent strategic backers. These bidders think that the target company is an attractive way to enter our industry. Would we like access to the VDR? When could we submit a binding offer? Of course, these are situations best pre-empted through vigilant competitive intelligence.

3 Sources of Competitive Intelligence

There were three main sources of competitive intelligence in food delivery.

Source #1: Industry Contacts

Industry Contacts include early stage investors, local entrepreneurs, and operational partners among others. This intelligence usually arrives in informal and serendipitous ways. Examples include coffee chats, WhatsApp forwards and Zoom catch-ups. Industry Contacts are the richest source of information in the space. But their intelligence has three persistent drawbacks: 

• First, this kind of information is noisy. It is often contradictory, exaggerated or otherwise designed to influence its eventual recipient. 

• Second, even reliable information usually provides data only up to a certain time. So, you may fail to notice a target’s meteoric rise until its investment bankers contact you.

• Third, low profile entrepreneurs have built some of the best companies in the space. They may never have talked to investors and journalists, and they may not be a part of your network.

Source #2: Third Party Research

It is always important to know what all the available industry research says. But I never found it useful for deal origination. This was particularly true in the earlier days of industry consolidation. Even very expensive research reports today are usually incomplete and often very inaccurate. This is true even when the publisher has a prestigious brand name. Unfortunately, researchers do not have the incentive to track targets on behalf of M&A teams.

Source #3: Automated Analytics and Tracking

Automated analytics and tracking tools are a great source of competitive intelligence.

Their data are free from various human biases, available in real time and on a recurring basis. Although the data quality was not great in the early days, it usually pointed in the right direction. And it kept improving over time. These tools allowed us to track hundreds of potential targets at the same time. Their main challenges included high cost, understanding the metrics, and educating other stakeholders. We actioned some of our best transactions with the help of these tools. Even though we were early adopters, I regret not trusting their signals sooner.

5 Insights for Deal Origination

My experience in food delivery has yielded many general insights into deal origination. Different details matter in different contexts, but many human elements should remain constant. 

Insight #1: Consider the interests of your human information sources

We usually are alert when other people’s interests clash with our own. Yet, it is hard to completely ignore even more overt attempts at influence. For example, when a competitor mentions an ambitious financial forecast for themselves. The more challenging cases might be when people have conflicts of interest. For example, when your local management downplay the strength of a direct competitor. Or when they want you to expand their fiefdoms with cash that comes from outside of their budgets. 

In every scenario, one should seek to confirm information with independent data. Automated Analytics and Tracking are great for such cases. M&A teams should circumvent local management teams for intelligence gathering.

There are some pitfalls here, but it is generally a sensible approach. 

Insight #2: Consider the data sources and methods of Third Party Research reports

Research reports often seem to offer easy answers to difficult questions. For example, they report certain market growth rates, penetration rates and market shares. I generally find it helpful to ask some version of the question. How can industry outsiders find answers to questions that industry insiders struggle with? They often can’t but their clients induce them to speculate. I would sometimes call the authors of reports to quiz them on their methodologies. In time, I learned to do checks to test the quality of any research that landed on my desk. Are all the players in a particular geography listed in the report? Does the report correctly give data that can be confirmed in listed company filings? Few pass even such simple tests. 

I admit that I base my skepticism on the peculiarities of the food delivery space. Other industries might be less opaque in important respects. Thus they may be more conducive to better third party research.

Insight #3: Seek access to automated analytics and tracking despite budget constraints

Many of the automated analytics and tracking platforms can be expensive. Some subscriptions go as high as $100k per country per annum. Even if you do access the tools, they will rarely be optimized for your purposes. So paying full price may not be a great value proposition. Here are some ideas for working within budget constraints: 

• Look for free or freemium versions of certain data sets. For example, you can access Google Trends for free. If your company is a big enough client of Google on the marketing side, then more elaborate options exist. Your Google Account Manager can help you build custom dashboards if you ask. 

• Investors can often get you free or discounted access to market analytics accounts. One of our shareholders turned out to be an investor in a leading analytics platform. They managed to get us a sweetheart deal.

• You can often sign up to be a beta tester for new features of the platform for free. I was one of the first testers of SimilarWeb’s API. This gave us access to a rich data set that we wouldn’t otherwise have had access to. In return, I only had to give feedback and public testimonials about the product.

• You can often negotiate rates for packages that are not advertised upfront. For example, you may ask for downloads of data sets rather than constant live access to the platform.

To be sure, any work on this front is going to have to be a bit scrappy. Comprehensive automated competitive intelligence solutions are only a feature of mature industries.

Insight #4: Learn how to interpret automated analytics metrics

They are often misunderstood even by industry insiders. Take time to learn what all the various metrics mean. Understand how the measurements happen. Think about the business KPIs they are proxies for. Talk to your account manager and read the relevant documentation. Some of the providers will give you access to sizeable data dumps, but only a few metrics will matter. An example of a misunderstood metric from the food delivery space are app downloads. A high number of app downloads is a necessary condition of success. But the metric says very little about the company’s economic results. Users may download apps but not use them or keep them.

Over time you’ll learn how your industry context influences the interpretation of results. For example, we paid less attention to Google search and Apple device data in South Korea. Naver and Samsung dominate their respective markets in the country. So the results from the western technology platforms were not very relevant. 

 Insight #5: Be prepared to educate and persuade other stakeholders to use and trust the new metrics

It takes time for people to learn to trust and use new data sources. The first automated intelligence dashboards that we built had few regular users. Skeptics noted that the initial outside-in metrics didn’t match in-house numbers. But this mattered less for sourcing deals and evaluating potential target companies. For M&A purposes, inaccurate data is better than no data. Moreover, unbiased automated data can help resolve contradictory information from industry sources. 

Of course, automated tracking has now become institutionalized in food delivery. This is also due to improvements in the automated analytics and tracking tools. 

Conclusion

Today there are very few cities in the world in which it isn’t possible to order a pizza on your smartphone. Food delivery companies are now some of the largest in the global tech sector. Growth and deal-making in the space will continue, but the land grab era is likely behind us. To be sure, consolidation in food delivery has had its own strategic imperatives. A great deal of importance was placed on winning, scale and hyper-growth. These objectives may not apply in all contexts. But some of the human insights in deal origination should have a broad application.