By Jarrett Banks
When it comes to regional expansion, Uber Technologies, Inc., Just Eat Takeaway, and Doordash tend to take big bites. Who might be their next M&A target?
One prime candidate to consider is food ordering and delivery business Waitr Holdings, Inc., which connects local restaurants to diners in underserved markets where it usually has a dominant number one or two position. The company, which went public about two years ago, is developing new and innovative payment solutions amid a global pandemic that has sped up the adoption of mobile commerce.
Waitr Chief Executive Carl Grimstad, who took over in January, brings some serious fintech chops to the table, having formerly run payments processor iPayment Inc. Headquartered in Lafayette, La., Waitr has a market capitalization just under $400 million – snack sized for a big potential acquirer.
Waitr’s dominance in the U.S. southeast under Grimstad’s leadership makes it an attractive acquisition target for a rival seeking a bigger presence in the region. With big players in the food delivery industry having already marked their turf in most urban areas, the real action is now in smaller cities and suburbs.
Any acquirer would instantly gain a massive audience of millions of customers who have the Waitr app on their smartphones. And there would be plenty of cost savings: The headquarters in Louisiana and associated corporate overhead could all go, with the drivers the only real staff needed.
Setting aside M&A, Waitr has plenty of levers to pull that can generate more shareholder value. The company’s digital-payment accounts continue to rise as it creates demand for new and faster ways to pay and be paid. The industry is seeing increased use of mobile point-of sale devices, contactless cards, mobile QR codes and smart points of sale, creating new use cases and merchant categories.
Wall Street has taken notice. Hedge fund ownership of Waitr’s outstanding shares increased to 25% from 5.8% in the last quarter, according to data in new 13Fs with the Securities and Exchange Commission.
Food delivery is still in its nascent phase of growth. Worldwide, the market for food delivery stands at $98 billion, or 1 percent of the total food market and 4 percent of food sold through restaurants and fast-food chains, according to McKinsey.
Consolidation in the food delivery industry is everywhere. Just Eat-Takeaway announced it was acquiring Grubhub in June, and Uber said it was buying Postmates in July. Grubhub’s acquisition was priced at 5.6 times sales. The equivalent for Waitr would be well over $1 billion, roughly tripling the company’s current valuation.
Even without a deal, the stock looks too cheap. Waitr trades at an enterprise value of just 2 times 2020 sales and 10 times 2020 Ebitda, according to Sentieo, an AI-enabled research platform.
That is surprising given the company’s organic growth prospects and recent swing to profitability – which should only get better over time. Thanks largely to Mr. Grimstad’s quick work, Waitr posted Ebitda of $16.7 million in the second quarter, compared with a loss of $25 million a year earlier.
Waitr has a wide menu of appealing attributes – so investors can take their pick. It’s an obvious regional M&A target. It now has a highly-profitable model with margins that should keep expanding as the top line grows. And the industry is only beginning to realize the potential of digital payments with consumers and captive merchants. Investors would be wise to order ahead to avoid the queue.