DELIVERY Hero has snapped up a tasty dish. The German group's US$4 billion deal to buy the South Korea's biggest food delivery app means it has cornered a wealthy and expanding market. Hearty growth and profitability justify the valuation, while a new Singaporean outpost adds extra spice.
The cash-and-share deal announced on Friday looks rich considering that it's just a year since Woowa received an investment which valued it at US$2.6 billion. However, the valuation of 15 times the company's 2018 revenue in South Korea is only slightly chunkier than the 14 times multiple at which Delivery Hero was trading before the announcement, according to Breakingviews calculations.
Moreover, Woowa's revenue in its largest market jumped 84 per cent in the first nine months of 2019 and it remains highly profitable, with an operating margin of 18.4 per cent last year, according to analyst Douglas Kim who publishes on Smartkarma - a contrast with its loss-making German acquirer.
The deal gives Delivery Hero control of the burgeoning online food delivery market in South Korea, a country where the majority of consumers still place orders over the phone. Aside from a food services market that the company estimates at 83 billion euros (S$125 billion), CEO Niklas Oestberg is also hoping to target the 192 billion euro groceries market over the next decade. Woowa comes with a Vietnam unit, and part of the deal is setting up a joint venture in Singapore, both of which will help Mr Oestberg beef up the business in the region.
The potential hair in Delivery Hero's bibimbap, however, could be competition regulators. According to the website Go Korea Tech, Woowa's Baedal Minjok and Delivery Hero's Yogiyo and Baedaltong currently control the entire app-based food delivery market. Approval may depend on whether the authorities define the nascent industry as a distinct business or view it as part of the broader market for ordering food.
Delivery Hero may argue that competition is likely to hot up as operators of online marketplaces, like Woowa, face challenges from deep-pocketed new entrants who rely on their own delivery networks. But the near-20 per cent jump in the German group's share price on Friday morning shows that shareholders think consolidation will be good for them. Global rivals Uber Eats and Deliveroo are likely to get some serious food-deal envy. REUTERS