Berlin-based global food (and grocery) delivery giant Delivery Hero is one of the biggest technology companies with local operations across the Middle East. It earned close to USD 800 million in revenue from the Middle East, North Africa, and Turkey in 2019 after witnessing an increase of 126% from the year before. This was almost half of company’s total revenue from its global operations.
In 2020, it raked in USD 725 million in the first nine months alone despite challenges due to lockdowns all across the region in the second quarter, which suggests its Middle Eastern business could very well hit the billion-dollar annual revenue mark for the first time this year.
The company has a market cap of close to USD 25 billion. Looking at company’s revenue, its MENA business is responsible for at least one-third of it.
What’s even more important is that the Middle East is the only region where Delivery Hero has been able to have a positive EBITDA for two straight years, USD 24 million in 2017 and USD 18 million in 2018. The Middle East business would’ve had a positive EBITDA of USD 70 million in 2019 as well, but as the company invested heavily in dark stores and kitchens in the region, it was negative USD 22 million.
There’s one thing at the heart of Delivery Hero’s rise in the Middle East: acquisitions.
The German company has spent over USD 1.2 billion in the Middle East from 2015 to 2020, making it the biggest acquirer of technology startups in the region. There have been a handful of USD 100 million exits in the region, and Delivery Hero has been directly involved in four of them.
Until August, they had only acquired food delivery companies. But with the acquisition of Dubai-based grocery marketplace InstaShop, that changed. Here is MENAbytes’s deep dive into Delivery Hero’s acquisitions.
HQ: Turkey. Acquired for USD 589 million in 2015. Founded in 2000.
In 2015, Delivery Hero acquired Yemeksepeti for USD 589 million. It was the largest acquisition at the time in the online food ordering space, and one of the largest to date for the Turkish startup ecosystem as well.
Yemeksepeti had started in 2000, which makes it one of the first food ordering platforms of the region. It was present in Turkey, United Arab Emirates, Saudi Arabia, Lebanon, Oman, Qatar, and Jordan. In GCC countries, Lebanon, and Jordan, it had acquired a majority stake in a local player called ifood.jo.
At the time of the acquisition, it was processing over 3 million orders per month and was a profitable business. It had raised over USD 44 million in total funding with General Atlantic, Endeavor Catalyst, and MENA Venture Investments as its investors.
Yemeksepeti continues to exist as Delivery Hero’s only company in Turkey and is one of its leading food delivery brands. Company founder Nevzat Aydin continues to lead the business in the country.
HQ: Kuwait. Acquired for USD 100–200 million in 2017. Founded in 2016.
Kuwaiti food delivery startup Carriage was acquired by Delivery Hero just before the German company went public in June 2017. Carriage was founded just 14 months before its acquisition by Delivery Hero. At the time, Delivery Hero was operating in Kuwait through Talabat, but was quickly losing market share to Carriage. As the young Kuwaiti startup had its own fleet, it was able to offer both food order and delivery solutions to restaurants. Talabat, the Delivery Hero subsidiary, only offered online food ordering solutions to restaurants.
According to the company’s financial filings, Delivery Hero paid USD 100 million to purchase Carriage, with the founder(s) receiving additional payouts of up to USD 100 million afterward. If that was the case, the total acquisition price was about USD 200 million.
At the time, Carriage was operating in Kuwait, the United Arab Emirates, and Bahrain. Its main market and chief source of revenue was Kuwait.
Delivery Hero was apparently interested in Carriage and was willing to pay such a price primarily because it was losing Kuwait, one of its most important markets in the Middle East. After the acquisition, its 2018 revenue in Kuwait was USD 110 million. It is unclear how much Carriage contributed to this amount.
The Kuwaiti startup had never publicly announced any funding round. According to what’s available online, it started with USD 1.3 million of capital invested by its founders.
After Carriage’s acquisition by Delivery Hero, the firm continued to operate independently and expanded across its existing markets, and landed in new locations too. Its operations were absorbed by Talabat earlier this year in a consolidation move by Delivery Hero.
HQ: India. Acquired for USD 172 million in 2019. Launched in MENA in 2013.
Zomato’s business in the United Arab Emirates was acquired by Delivery Hero in 2019, six years after the Indian startup launched its operations in the United Arab Emirates. Delivery Hero paid USD 172 million for the acquisition. Around the same time, it also invested USD 50 million in Zomato’s global business.
At the time, Delivery Hero said that its acquisition of Zomato’s UAE business will add 1.2 million monthly orders and USD 2 million in monthly revenue to its business in the Middle East and North Africa, in turn strengthening its leadership position in the country.
Delivery Hero has been consolidating its operations under Talabat across the region (except in Saudi Arabia). This means Carriage and Otlob faded away. But Zomato’s business is still being operated under its own brand in the UAE.
HQ: United Arab Emirates. Acquired for USD 360 million in 2020. Founded in 2015.
Acquired earlier this year, InstaShop is the most interesting acquisition made by Delivery Hero in the Middle East for several reasons. It is the first grocery delivery startup that the German company acquired in the region; all of Delivery Hero’s previous acquisitions have been food delivery startups. InstaShop is also the largest exit for a female co-founder in the Middle East, and the first Middle Eastern company with a female co-founder to have been acquired by Delivery Hero.
Delivery Hero has been delivering groceries almost all around the region for over a year now. Dark stores have been a big part of its strategy in the Middle East and North Africa since the start of 2019. With the acquisition of InstaShop, which has been present in Qatar, Egypt, and Bahrain, in addition to its home market of the United Arab Emirates, Delivery Hero is hoping to replicate the success of food delivery in groceries by eating up the competition.
Founded in 2015, InstaShop is an on-demand grocery delivery marketplace that connects customers with grocery stores, with the stores themselves handling logistics. Delivery Hero has allowed InstaShop to operate as an independent brand under its current leadership, who have a payout of USD 90 million attached to their performance. The USD 360 million price tag includes USD 270 million as the initial price, with the rest in earnouts.
Delivery Hero will use InstaShop to fuel the growth of its quick commerce in the region and beyond. It is very likely that a large number of orders placed through InstaShop in the future will be fulfilled by Delivery Hero’s dark stores, which could mean better margins. InstaShop is EBITDA-positive and has an annualized GMV of USD 300 million based on its 2020 Q2 numbers—a 330% increase on a year-on-year basis.
The deal resulted in brilliant returns for its investors Jabbar Internet Group and VentureFriends, as the company had raised USD 7–10 million before being acquired by Delivery Hero.
In addition to the companies that have become a part of Delivery Hero after direct acquisitions, many have landed in its kitty indirectly, including Talabat and HungerStation. Talabat was part of Rocket Internet’s food delivery business, which Delivery Hero had acquired in December 2016. Rocket Internet had acquired Talabat almost two years before that for USD 170 million. Thanks to the Samwer brothers, Talabat is now the leading brand of Delivery Hero in the Middle East.
HungerStation, another successful and but troubled Delivery Hero brand in the Middle East, is now owned by them because of the Rocket Internet. Foodpanda, Rocket Internet’s food delivery business, had merged with HungerStation right before its acquisition by Delivery Hero.
The terms of Foodpanda and HungerStation’s deal were not disclosed, but many in the industry believe that the company was sold for a bargain. Ebrahim Al-Jassim, the founder of HungerStation, however, was smart enough to keep a 37% minority stake, which he holds to date. HungerStation is the only Delivery Hero food delivery company in the Middle East, where it has a large non-controlling interest.
Some of the other Middle Eastern companies indirectly acquired by Delivery Hero include Otlob, which changed its ownership multiple times before being sold to Rocket in 2015, as well as 24h.ae and ifood.jo.
New competitors assert their presence
In spite of Delivery Hero dominating the food delivery space in the Middle East, new local competitors are popping up, with some international players also continuing to expand in the region.
Jahez, a Saudi food delivery startup that was founded in 2016, raised USD 36 million in the country’s largest VC deal earlier this year. Elmenus in Egypt also raised USD 8 million to take on Otlob (now Talabat). Istanbul-based Getir is mainly focused on ultrafast grocery delivery but delivers food too; it raised USD 38 million from Sequoia Capital’s Michael Moritz and other investors.
There are dozens of other players making waves in the sector, including those that are focused on corporate meals and others that have been offering grocery delivery services even before Delivery Hero expanded into the category.
What’s interesting is that Delivery Hero remains one of the best exit options for these startups’ founders and investors. There’s hardly anyone else who is willing to make hundred-million-dollar bets on these companies.
This article was first published by MENAbytes.