We use cookies to improve your online experience. For information on the cookies we use and for details on how we process your personal information, please see our privacy policy. By continuing to use our website you consent to us using cookies.
Just Eat gets CMA green light to gobble up Hungryhouse

Just Eat gets CMA green light to gobble up Hungryhouse

Just Eat gets CMA green light to gobble up Hungryhouse

The below story, featuring Preoday, appeared in Digital Outlook. Preoday has also been featured in the Financial Times and The Times since news that the CMA is set to greenlight Just Eat’s acquisition of Hungryhouse was released.

Just Eat has been given provisional approval by UK competition authorities to complete its acquisition of rival online food ordering website Hungryhouse, deciding that its initial concerns were unfounded.

The Competition and Markets Authority began a deep ‘phase 2’ probe into the merger after in May saying that its initial investigation found the companies were “close competitors because of the similarity of their service and their broad geographical coverage”.

However on Thursday the CMA said its independent adjudicators found that, on balance, the combination of the two businesses “is unlikely to result in competition concerns” such as raising prices or reducing quality for restaurants or customers, though it has called for business and the public to submit their views before giving a final decision.

Hungryhouse was seen to presently provide “limited competition” to Just Eat, with 9k of its 10k restaurants also on the Just Eat platform, and it was felt to be “much smaller in size and offers too few unique restaurants, making it increasingly difficult for Hungryhouse to attract and retain consumers”.

Furthermore, the CMA took into account the rapidly evolving online market for digital food ordering platforms, such as Deliveroo, UberEATS and Amazon, which also manage or facilitate delivery services on behalf of restaurants.

“These companies generally present a greater competitive challenge to Just Eat than Hungryhouse, and this is likely to grow as they expand,” the CMA panel found, having obtained evidence from all the major industry participants and carried out surveys with the public and restaurants to understand how the merger could impact both types of customers.

Martin Cave, chairman of the inquiry, said: “We found that Hungryhouse was a weak competitor to Just Eat and so competition is unlikely to be substantially reduced by this merger, especially given the entry and rapid expansion of innovative suppliers in this sector.”

In reaching its provisional conclusions, the CMA also noted that consumers could order directly from takeaway restaurants, either by telephone, through their websites or by walking in.

Much smaller rival Preoday, which Just Eat has indicated as the only truly similar alternative to its business, warned that in the short term, “thousands of British restaurants and takeaways could suffer” due to Just Eat’s dominant national reach: “If it wants to up its prices, there are few alternatives, with the same sway, available.”

But Preoday CEO Andrew White said if restaurants find themselves backed into a corner with limited options, they will naturally seek alternatives, which he said would allow companies like Deliveroo and UberEATs to grow faster, and to create space for new market entrants like Oxford Orders and EasyFood.

Just Eat, where former Moneysupermarket boss Peter Plumb was appointed new chief executive in July, naturally said it was pleased with the decision and said it expected the final decision in November.

Analysts at JPMorgan Cazenove have forecast that the acquisition would boost pro forma 2018 earnings per share by around 8%.

With Hungryhouse generating around £28m of revenues and making a loss of close to £12m, Canaccord Genuity estimated Just Eat would make a profit of circa £14m on the same revenues.

Investec‘s David Amiras calculated the deal is potentially worth 7% to EBITDA in 2018, expecting completion before the end of 2017.

“We are positive on the deal, helping Just Eat to bolster its presence in the UK and potentially drive greater economies of scale,” he said, seeing EBITDA forecasts rising from £211m to £226m and implying an EBITDA contribution from Hungryhouse of £15m.

Just Eat reports third quarter trading on 31 October, with Investec expecting momentum to have continued, with easier comparative figures from last year relative to the first half and partial benefit from the TV sponsorship of ITV’s X Factor.

Find out why Preoday clients are choosing the platform over Just Eat in this case study from our client Red Naga

Other Blog Articles