The all-stock deal is expected to be announced today according to reports.

Uber Technologies Inc. (NYSE: UBER) is acquiring food delivery start-up Postmates for $ 2.65 billion in an all-stock deal, according to reports by Bloomberg and the New York Times.

Uber and Postmates had discussed a merger on many occasions over the past four years. However, the current feeding frenzy in M&A deal-making in the food delivery sector probably spurred a closure this time around.

It’s all about scale

Uber’s ill-fated plans to acquire GrubHub Inc (NYSE: GRUB) were nixed when European online food and beverages delivery platform Just Eat Takeaway.com NV (LON: JET) swept away GrubHub with a $ 7.3 billion bid. Presumably, Uber reopened talks with Postmates after its abortive bid for GrubHub. The startup is a smaller rival to Uber Eats, Uber’s own food delivery service.

Players in the sector are jockeying for scale and after the coronavirus pandemic boosted demand for food and beverage deliveries.

It’s a low margin, highly competitive business and Uber is probably looking to cut administrative overheads and platform costs by consolidating Postmates (market share 8%) with Uber Eats (market share 23%). On the revenue side, the combined service could gain more pricing muscle.

Its food delivery operations could balance the negative impact of the COVID-19 pandemic on Uber’s ride-hailing business.

However, in the rapidly consolidating sector, DoorDash is still the dominant player, delivering about 44% of US meals in May.

Postmates

Bastian Lehmann, Sam Street, and Sean Plaice co-founded Postmates in 2011. It currently has a fleet of over 500,000 members and 600,000 merchants across 50 American states.

According to the San Francisco Chronicle, the startup previously held deal-making discussions with both DoorDash and GrubHub.

Postmates is currently number four in the food delivery market share sweepstakes. It has a good customer base in Los Angeles as well as the American Southwest.

It is expected that Uber will merge Postmates into Uber Eats, and Uber Eats head Pierre-Dimitri Gore-Coty will continue to be at the helm of affairs of the combined entity. However, Postmates Chief Executive Officer Bastian Lehmann and his team will continue to manage the operations of the Postmates unit.

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