Description

TKWY is the market-leader in two of the highest margin food-delivery markets in the world, Germany & the Netherlands.  It also has near #1 share in the UK and Canada, and substantial business in many other markets including the US and Australia.

A year ago, Beethoven laid out an in-depth analysis detailing the history of food delivery and how TKWY got into its current situation.  I’m not going to repeat that, I recommend if you’re not familiar with the business you read his write up first. 

TKWY stock has declined ~90% since before covid, and now sports an EV of ~2.7B EUR, or ~0.33x its Northern Europe segment GTV.  That assumes the other 70% of TKWY’s GTV (a leading position in the UK, a leading position in Canada, Grubhub, Australia, and Southern Europe) is worthless.

M&A Multiples

There have been many M&A transactions in this space over many years, and I’m not aware of any ever selling below 0.5x GTV.  i.e., 52% higher than the market is valuing the Netherlands and Germany, assuming the market places no value on ~20B EUR of GTV in the UK, Canada, US, Southern Europe, and Australia. 

The reason deals have never happened below that price (and have often happened materially above it) is because M&A in this space is very accretive and synergies can be realized quickly.  A consolidated market leads to more rational pricing/marketing strategies, combining orders leads to more efficient routing (i.e., lower delivery costs and better food quality), and the acquirers move orders over to their own tech stack and get rid of all the duplicate overhead.  Not including any overhead allocation, for a single order, food-delivery companies can earn ~7-10% margins on the incremental delivery order.  So, when an acquirer pays 0.5x GTV, and gets rid of all the redundant overhead costs, it’s basically paying a mid to high single digit multiple of the incremental profit it’s buying.  That’s not including any route density benefits to delivery cost or improvements in the competitive environment.  You don’t need exuberant capital markets for 0.5x GTV to make economic sense in this industry.

If TKWY’s Northern Europe segment were ever sold, I would be shocked if it didn’t attract a much higher multiple than 0.5x GTV given their dominant market share (80%+), profitability, and greater marketplace mix because of a more fragmented and less-QSR heavy restaurant landscape (i.e., structurally higher margins as a % of GTV).

Even TKWY’s sale of its 33% stake in iFood to Prosus in November 2022 was done at 0.6x GTV.  Notably, this sale was for a minority stake agreed to at the exact bottom of the market (for every tech stock except TKWY) between counterparties that each knew the seller, TKWY, had significant debt coming due and the buyer, Prosus, was probably the only possible counterparty. 

ROO currently trades at ~0.21x GTV (or ~0.35x UK GTV, assuming all their international positions are, like TKWYs, worthless) and DoorDash has been interested in acquiring it, but talks have allegedly fallen apart on disagreement about valuation.  For reference, Dash acquired Wolt (which was similar size as ROO) for 3x GTV in June 2022. 

Who Cares, is it For Sale?

I think it’s very clear if TKWY were legitimately “for sale,” it would sell for multiples of the current price.  Of course, the problem is that doesn’t mean Jitse will actually sell the company.  In fact, it would surprise me if it did.  However, it wouldn’t surprise me if he sold select markets where TKWY is strong but not dominant at multiples much higher than the 0.00x GTV the market is currently ascribing to them.  In fact, it would surprise me if he didn’t do so based on common sense and his recent commentary.  For example, in January he said, “It’s very likely that there will be M&A in our sector this year.”

Or three months ago, he said this about Australia:

“Australia is a bit of a different matter.  We’re actually quite large in Australia, one of the larger players in the country.  I said before that I don’t think Australia sustains 3 players.  The Australian market as such is probably less interesting than the Dutch market in terms of profitability.  Also, because, of course, the logistics share in Australia is much higher than it is in Holland.  And therefore, your investment horizon, and that applies for all players actually in Australia, not only for us, is a lot longer.  And then the question is, of course, if you’re willing to deploy that capital.  Now that could lead to consolidation.  It could lead off to disposals.” 

I’m not sure how much GTV TKWY generates in Australia, but my guess is something just shy of 1B EUR, which at the lowest precedent multiples would be worth around 500M EUR (~20% of the EV).  But it wouldn’t surprise me if the multiple was higher, since Doordash, Uber, and Menulog (TKWY) are all large players in Australia, so the acquirer will be by far the market leader.

They are in a similar situation in Canada, where Doordash, Uber, and Skip (TKWY) are all large.  I’m not sure what their Canada GTV is today because it’s lumped in with Grubhub now in a North America segment, but in 2021 it was disclosed separately as 2.8B EUR of GTV.  In a transaction this could be worth 50%+ of TKWY’s EV.

Again, Grubhub is similar although unlike Australia/Canada it is a clear #3 and is actively for sale.  Right now, the bid ask spread is likely too wide given the existence of the NYC fee caps which are a binary outcome.  Grubhub is on track to run it FCF breakeven later this year, excluding any fee cap relief, and the fee caps were costing Grubhub 130M EUR in 2022 when a figure was last disclosed.  I believe the plaintiffs submitted their motion for summary judgement in early June, and the Judge should be considering that in the very near future.  The plaintiffs’ case is very strong and besides removal of the fee caps, winning would result in money damages.  I recommend reading the Judge’s ruling from September on NYC’s motion to dismiss to understand how strong the arguments are, and the Judge’s initial thoughts on the case.  I suspect this is why there has been momentum behind a resolution to amend the fee caps to allow a total of 43% to be charged to restaurants (compared to the current cap of 23%) in the form of a lower delivery fee but then higher marketing costs.  If (probably when) NYC loses, there will be no fee caps anyways, and NYC will have to pay damages.  Bills in NYC need the vote of at least 26 councilmembers, and the fee cap amendment currently has 22 sponsors.

In terms of why someone would be interested in Grubhub, it’s important to note that when you look nationally, Grubhub looks subscale, but it’s market share is concentrated locally in only a few huge markets like NYC (Seamless).  That’s a valuable position for a food-delivery acquirer, but also means they do have the option to simply run it for cash, so they aren’t a forced seller to Uber.  Also, given their partnership with Amazon, and Amazon’s small ownership stake in Grubhub, it wouldn’t surprise me if Amazon was a potential acquirer.   If they sold it for 1B EUR (~10x after-tax FCF assuming no synergies), that would be ~40% of TKWY’s EV.

If they sell Grubhub (US), Skip (Canada), and Menulog (Australia), I think they could generate proceeds equal to the current EV of TKWY.  And I think based on Jitse’s commentary, this is a reasonably likely scenario.

That would leave the company focused on Northern Europe, probably worth 2-3x the current EV in an M&A transaction, and the UK, probably worth 1-2x the current EV in an M&A transaction, plus a bunch of other much smaller markets where they have strong market positions like Israel, Italy, and Spain.

To be clear, I would be surprised (but not shocked) if Jitse sold the whole business.  If he did, I think it would likely be worth 4-6x the current EV.  However, I think it’s highly likely that he sells Grubhub and Australia soon (and possibly Canada) and focuses the company back on Europe where it is strongest and where it is profitable.  I think doing so would lead to capital returns of nearly 100% of the current market cap and a RemainCo with a focused business in Europe with a valuation more Doordash-like, and less TKWY-like (i.e., without the empire-builder / owner of a collection of subscale markets discounts).

Risks:  The biggest near-term risk is that Dash buys Deliveroo.  Besides making Deliveroo an even more formidable competitor, it would eliminate Dash as a potential acquirer of TKWY's UK business.  We could lose the fee cap lawsuit.  And worst of all, Jitse could decide not to divest any markets and the narrative of Jitse the empire builder will continue (and in that case, rightfully so...).

Catalyst

1)  Resolution of NYC fee caps

2)  M&A