Transatlantic Consolidation

European Straits | Monday Note

Hi, it’s Nicolas from The Family. Here’s a Monday Note on Just Eat Takeaway acquiring Grubhub and what it means for the future of European tech.

For me the big news last week was Just Eat Takeaway snatching Grubhub out from under Uber’s nose. You could argue that it goes against the ‘Great Fragmentation’ storyline that I’ve been developing recently, and I agree to a certain extent. But for now I’m digesting this new development with an eye to refining the reasoning a bit.

  • Gonz Sanchez offers a solid discussion of the deal in the latest edition of Seedtable, digging into the differences between marketplaces (platforms “for restaurants that have takeaway to offer their own services to new customers”) and delivery networks (companies “that use their own delivery network to bring meals from restaurants that would not traditionally offer take-out”). The former have a clear path to profitability, as proven by Just Eat Takeaway; the latter are still struggling to make money, as proven by Uber, Deliveroo, and many others.

The best discussion on the ‘Great Fragmentation’ can be found in Kai-Fu Lee’s wonderful AI Superpowers. In it, he explains how Chinese entrepreneurs find a way to success by going through different stages. Here’s the short version of that playbook:

  • Step 1—Everyone launches a new business vaguely inspired by what’s going on in Silicon Valley (hence the stereotype that the Chinese “steal” and are unable to innovate). 

  • Step 2—Then everyone encounters obstacles that are specific to the Chinese market, which leads some to innovate in order to discover ways around these obstacles.

  • Step 3—In the end, the winner is the company that hasn’t lost too much money getting through Step 1 and is then the most successful at implementing Step 2.

If you’re paying attention, you know that my invitation for European startups to focus on their domestic market is not an invitation to stay small. Rather, it’s all about discovering models that are uniquely European—that is, adapted to a more fragmented market from both an operational and a financial perspective:

  • This is exactly what’s been happening here: while US delivery giants were burning billions in cash trying to compete in dozens of cities with their own delivery networks, Just Eat Takeaway was steadily growing its profitable marketplace for restaurants in Europe.

  • In the end, the European model seems to have won out (and Grubhub was saved by the acquisition none too soon, as it was experimenting with a money-losing delivery network model thanks in no small part to the competition with the likes of Uber and DoorDash).

Another remark: Everything in this deal was facilitated by the fact that both entities are public. Just Eat Takeaway is listed on the London Stock Exchange (home of the UK-based Just Eat) and the Euronext exchange in Amsterdam (where the Dutch Takeaway.com originally did its IPO), while Grubhub IPO’d on the NYSE in 2014. This suggests that for European champions to reach a global scale, it helps them to go public. Doing so helps make the case for the soundness of their business model, and it provides them with ammunition for acquiring targets on other markets. About that, read my Europe Shouldn't Be Content With Boring IPOs.

Finally, there’s a precedent for such a transatlantic consolidation: Booking.com, also a Dutch company, which was acquired by the US company Priceline in 2005 (for $133M). In that case, the roles were reversed (a US company acquiring a European target), but today Booking.com, which is still headquartered in Amsterdam, is the primary revenue source of its US-based parent (a situation, by the way, that led Priceline to rename itself Booking Holdings). The takeaway (pun intended)? In some cases, we Europeans are better at making money than our US counterparts—and it shows.

And on Just Eat Takeaway acquiring Grubhub, also read: 

😀 Every corporation in the world is trying to improve diversity in its ranks and to take care of colleagues from under-represented groups. Overall, this is good news. I especially like this initiative by Goldman Sachs (a company that I know is determined to make progress on that front).

🙂 Dragos Novac has more about EQT’s recent investment in Spanish startup Freepik and why it was done through the PE arm rather than the VC arm: see yesterday’s edition of Sunday CET. There’s a clear echo with what I wrote last week about Can Private Equity Firms Make Money in Tech?

😏 Facebook is launching a venture capital arm. We don’t have all the details, but Axios has some of them here. I’m skeptical about corporate VC in general. In short, it suggests Facebook has too much money and doesn’t know what to do with it. Or maybe it’s drawing inspiration from Chinese tech giants?

😐 Everyone’s puzzled by the divergence between the state of the economy and that of the US stock market. I was intrigued by this quote from a UK-based asset manager: “The risk has been that central banks have almost been too effective in supporting markets, masking the economic cost of lockdowns”.

😒 There are talks of Western Union acquiring Moneygram and giving birth to a global giant in remittance. Rey Mashayekhi of Fortune wonders if the deal will lead to a competitive advantage over tech-driven new entrants. On that, have a look at my Enough With the Big Corporate Mergers.

😖 There’s been a wave of female founders being criticized for their rough management styles (see: Away and Outdoor Voices). Now more recently there’s something happening with female figures being insensitive to racial issues (see: The Wing). It’s a good thing that CEOs are being held accountable, but why does it seem like the spotlight’s only being turned on women? 


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From Normandy, France 🇫🇷

Nicolas

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