Today, thanks to the maturation of the web, digital tech, and
smartphones now in seemingly every pocket, startups are finding it
easier than ever before to build scalable solutions to finally
address the many inefficiencies in our food manufacturing,
production and distribution systems.
As interest in food tech balloons,
one area in particular appears to already be at the tipping
point: Online and mobile food delivery. Over the last few days,
we’ve hearing about a merger between two of the largest
companies in the space. Rumor has it that “arch
rivals” GrubHub and Seamless are in talks which
could see them join forces as part of a merger. While our sources
tell us that the talks are serious, the terms of the merger are not
yet clear and, of course, any potential deal could fall
Furthermore, it’s not yet clear what kind of synergies would
take place, how management of the new entity would be structured or
even what the new business will be called. The two companies would
not confirm on the record on any of the above. But as far as the
name goes, we’re hoping for Grubless. Or Hubless GrubSeam. But they
have a nice ring to them, don’t they?
If these rumors are true, the merger comes at a good time for
the arch rivals, who have been seeing mounting competition of late
from a laundry list of new startups entering the space, including
increasingly popular alternatives like Delivery.com,
ChowNow, Munchery (meals from local chefs),
bigs of Europe, like Food Hero and Just-Eat.
If the online food-ordering and delivery market is roughly where
daily deals were three-plus years ago, then the deal essentially
Groupon of food delivery. Like the daily deals market,
food ordering has traditionally had a fairly low barrier to entry,
which helps explain why we seem to see a new startup pop up every
Plus, the business model isn’t particularly complicated, making
it replicable. That being said, innovation and tech adoption have
been slow to come to the food industry, and, at scale, this model
(taking a slice of transactions) has the potential to be able to
generate a lot of cash.
This is just one part of why the “food tech” business has been
so hot lately. Just ask venture capitalists who
collectively poured $350 million into food startups over the
last year. (Compare that to 2008, when it was less than $50
million.) Plus, when you get right down to it: People need to eat.
And, as it turns out, people are pretty busy. Uh, and lazy.
Of course, for those who remember the spectacular failure of
online food companies like Webvan, Kozmo and HomeRuns, this whole
“tech in your kitchen” and online ordering jibber-jabber probably
sounds familiar — and not in a good way. But this time it’s
Research from Cornell University recently found, for example,
that over 40 percent of adults in the U.S. have ordered food
online, and 10 percent of restaurant orders now originate online —
and these numbers continue to head north. GrubHub and Seamless have
built successful businesses on this very idea.
Both GrubHub and Seamless have been around for some time: The
New York City-based Seamless was founded in 1999, while the
Chicago-based GrubHub got its start in 2004. And for the most part,
the two companies have catered to two different markets
geographically. While both now have fairly expansive coverage,
GrubHub has naturally developed a firm foothold in the Midwest,
while Seamless focused its early attention on NYC, before moving
into cities like Los Angeles and San Francisco. From that
perspective, a merger would make sense, allowing the new,
consolidated entity to gain penetration into markets where they
lacked a major presence.
Writ large, the companies, while having some fundamental
differences, do seem to have a lot of synergies on paper — at least
“nominally,” depending on who you ask — likely why they’ve
increasingly become rivals over the years. Bboth are of fairly
comparable size, as GrubHub has more than 18,000 restaurant
partners across more than 500 cities, while Seamless has over
12,000 restaurants and serves nearly 5,000 businesses and more than
2 million users.
As of February, Reuters reported that Seamless was on track to
generate more than $100 million in revenue this year as it expands
into new cities and focuses more aggressively on mobile.
The company reportedly generated $85 million in revenue last
year, growing its consumer business by 60 percent year-over-year
and “will soon be processing $1 billion worth of food orders a
year,” Seamless CEO Jonathan Zabusky
told Reuters at the time. For the majority of its history, the
company focused primarily on New York, but launched a major
expansion effort last year, bringing its service to 10 new cities.
According to the report, Seamless saw its transaction volume
quadruple in Los Angeles during 2012, with transactions tripling in
Another interesting point to note: GrubHub was reported to be
considering an IPO last fall. The company denied the rumors at the
time, and if this merger is true, then they’ve been given the
proper perspective. Certainly, it would seem that this wouldn’t
take a potential IPO off the table, instead, likely making an
opening price that much higher.
The IPO rumors for GrubHub came at a time when the company was
reportedly doing about $60 million in revenue (this was in 2012) —
a little less than half that of Seamless. Furthermore,
Crain’s reported in December that GrubHub’s revenue has been
doubling every year and, as the company reported $30 million in
revenue in 2011, that revenue estimate would make sense and put the
company on the path to crossing $100 million well before the end of
That is all to say that, although the terms of the potential
deal are unclear, these are two sizable businesses that are growing
relatively fast, so any potential valuation has got to be fairly
high. After all: The two companies were fairly comparably
capitalized and staffed, with GrubHub growing to over 250 employees
and Seamless over 300, while GrubHub raised about $84 million from
a mix of venture and growth equity firms (including Benchmark) and
Seamless raised $51 million, $50 million of which came from private
equity firm Spectrum Equity.
While both companies have made a couple of acquisitions, this
would be the second big M&A deal for Seamless, as the company
was acquired by food services giant, ARAMARK, in 2006. Five years
later, Spectrum bought a minority stake in Seamless from ARAMARK,
and about a year later, the food services company spun-off
its remaining interest in Seamless to its shareholders. Free
from its corporate ownership, Seamless proceeded to go out and buy
MenuPages for $15 million, showing up GrubHub, which MenuPages had
initially targeted as its acquirer. When GrubHub and MenuPages
couldn’t agree to a deal, and it seems that GrubHub was instead in
the process of buying Dotmenu/Allmenus, Seamless swooped in —
according to BetaBeat.
So, as you can see, the companies have a long history of
jostling. While GrubHub had been out acquiring restaurant partners
fast and furiously, Seamless stagnated a bit under ARAMARK, but
since becoming an independent company (again) and with a new
board/investors, the company seems to have been compounding its
growth. Together, that growth could be exponentially higher.
Finally, if this deal is in fact a go, it’s worth looking at
this quote from GrubHub co-founder and CEO Matt Maloney from back
in 2011. In it, he shares his opinion on GrubHub’s top competitor,
a little company called Seamless.
He told BetaBeat:
I typically don’t talk this much about Seamless because we don’t
view them as incredibly strong competition for what we’re doing …
Seamless fundamentally is a corporate catering business. They were
founded years and years and years ago to do just that. And they’re
still best in the business for corporate. They recently got into
the consumer and residential pick-up and delivery. And they do it
well in New York, but they really have zero business anywhere else.
We don’t even consider them competition anywhere other than
So, there you go. A match potentially made in heaven, and one
that’s sure to shake up online and mobile food ordering if it
at home here and GrubHub here.