Amazon could buy Grubhub even though it shut down a similar food delivery service last year, analyst says
- Analysts at Mizuho Securities wrote in a note that Amazon could be the highest bidder for Grubhub, following the WSJ report about a possible sale.
- The note said that the acquisition would help Amazon make food delivery a "complementary service" to Prime members.
- Morgan Stanley's analysts, however, wrote in a note that Grubhub's potential acquisition could draw intense regulatory scrutiny, given its broader market implications.
- Click here to read more BI Prime stories.
If Grubhub does end up selling itself, Amazon could be the frontrunner to buy the food-delivery company, according to analysts at Mizuho Securities.
In a note published on Wednesday, Mizuho's analysts predicted that Amazon has the potential to be the highest bidder for Grubhub, following the Wall Street Journal's report about a possible sale. The financial research firm said a Grubhub acquisition could add food delivery to the many perks offered to Amazon's Prime members.
"We believe [Amazon] views food delivery business as a complementary service to Prime members, similar to its acquisition of Whole Foods and PillPack," the note said.
The prediction reflects the continued speculation around Amazon's interest in the food-delivery space. Amazon has previously tested a food delivery service called Amazon Restaurants, which shut down last year after failing to gain market share. The e-commerce company also led the $575 million investment in the UK food delivery startup Deliveroo last year.
Mizuho's analysts said other potential buyers include Prosus, the internet investment fund for Naspers, and other private food-delivery companies, as they look to consolidate the market. But the acquisition would be costly at an estimated $7 billion price tag, a 35% premium to the current stock price, the note said.
The Wall Street Journal reported on Wednesday that Grubhub is considering a number of strategic moves, including a sale of the company or an acquisition. The discussions are at an early stage and it's also possible the company won't make any changes, the report said.
Potential regulatory scrutiny
While Grubhub's potential sale makes sense, the move is likely to draw heavy regulatory scrutiny, according to analysts at Morgan Stanley.
Grubhub is one of the largest companies in the space, and any industry consolidation would have broader market implications for regulators to scrutinize, Morgan Stanley wrote in a note Thursday. For example, regulators in the UK are currently reviewing Amazon's investment in Deliveroo.
"We would expect any potential acquisition to be heavily reviewed by regulators given the potential long-term market influence and impact on small and large restaurants," Morgan Stanley's note said.
Still, Morgan Stanley says a market consolidation is needed in the food-delivery space, as the cash burn is too intense among competitors. Plus, Grubhub makes for an attractive acquisition target because of its highly profitable New York business and the potential cost savings it could bring to the buyer, it said - adding that Uber could also benefit from a Grubhub acquisition.
"It would appear that Uber may be the most likely potential suitor, and should such a transaction emerge, in our view, this would be bullish for Uber," Morgan Stanley's note said.
