NYC’s delivery fee cap is complicating a Grubhub sale

New York City’s delivery fee cap is hampering the potential sale of Grubhub, owner Just Eat Takeaway.com (JET) said Wednesday.

The cap, which limits third-party delivery commissions to 20% of the order total, is currently under review by the City Council and the subject of a lawsuit from Grubhub, DoorDash and Uber Eats. 

Its uncertain fate is making it hard for potential buyers to determine Grubhub’s value. If the cap were to be rolled back, third-party delivery providers would be able to charge up to 30% per order. 

“The swing factor is so dramatic,” JET CEO Jitse Groen told analysts, according to a transcript on financial services site Sentieo. 

The fee cap issue holds an outsize importance for Grubhub, for which New York is a stronghold. It has long blamed the caps for some of its revenue problems. However, Groen said he is “pretty confident” the cap will be killed. 

“We just don’t know when,” he said. “And this is in the U.S., it could happen overnight. It could also take a long time still.”

The City Council appears to be nearly split on the cap. An amendment that would allow providers to charge more has been co-signed by 25 of the group’s 51 members; it would need 26 votes to pass. But first, it has to be approved by the nine-person Committee on Consumer and Workforce Protection.

Amsterdam-based JET acquired Grubhub in June 2021 for $7.3 billion and began shopping it around the following April. In August, it wrote down the company’s value by $3.1 billion. A deal appears no more imminent now than it did at the start.

“There are conversations ongoing,” Groen said. “Unfortunately, these are complicated conversations.”

Another complication has been a sluggish M&A market, but that, at least, appears to be changing. 

“The U.S. situation seems to improve a bit if you look at it from an M&A perspective, but also from a valuation of U.S. businesses,” Groen said. “So I think that’s encouraging.”

The company insisted that it’s those factors, rather than Grubhub’s recent poor performance, that are standing in the way of a deal. In the first half of the year, JET’s order volume in North America (which includes Grubhub) fell 12%, continuing a streak of shrinking demand. Grubhub’s cash flow was negative $62 million in the period. It also appointed a new CEO and laid off 400 employees, or 15% of its staff.

On the bright side, JET’s North America business generated positive earnings of $56.4 million before interest, taxes, depreciation and amortization, or EBIDTA. Last year, EBITDA was negative $4.4 million. And Grubhub is “on a path” to breaking even on cash flow.

“I think we need to separate the state of the business which, actually as far as we are entitled to comment on that, is actually quite good,” Groen said.

Once the largest delivery provider in the U.S., Chicago-based Grubhub has fallen far behind competitors DoorDash and Uber Eats in recent years. 

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