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South Korea

Delivery Hero's South Korean deal raises prospect of further EM forays

  • German-listed food delivery giant Delivery Hero is about to complete US$4bn acquisition of South Korea's Woowa Brothers

  • Delivery Hero is loss-making, but could be on the turnaround track with growth generated by Emerging Asia

  • More acquisitions in EM are looming — the likeliest targets are in Indonesia, Vietnam, Kenya, Nigeria and Pakistan

Delivery Hero's South Korean deal raises prospect of further EM forays
Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

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Tellimer Research
24 August 2020
Published byTellimer Research

Delivery Hero, the German-listed food delivery giant, is about to complete a US$4bn acquisition of South Korea's Woowa Brothers as the German group seeks to expand in Asia. Delivery Hero will pay US$3.5bn for 87% stake in Woowa Brothers and the remaining 13% (which is held by the Woowa Brothers' management) will be converted into Delivery Hero shares.

Woowa Brothers controls one of the top food delivery apps in South Korea — Baemin, which has 10mn active users in the country. South Korea is one of the world's leaders in smartphone penetration and app usage.

The latest move comes close on the heels of Delivery Hero's inclusion in the DAX, the index of the top-30 stocks on the Frankfurt Stock Exchange. Delivery Hero is replacing Wirecard on the Index.

If the deal is completed, Delivery Hero would control 90% of the South Korean food delivery market — it owns Baemin's principal competitor Yogiyo. The deal is one of the largest in the world in the food delivery space. The implications are as follows:

  1. Delivery Hero is loss-making, but could be on the turnaround track

    Delivery Hero is loss-making like most players in the digital food delivery space. Its revenue growth in H1 20 was 94% following a growth of 112% in 2019.

    Adjusted EBITDA losses were EUR431mn (-30% EBITDA margin) in FY 19 and widened to EUR320mn (-28.4%EBITDA margin) in H1 20.

    However, its efficiency metrics are improving. This suggests that it may be able to reduce its loss levels to a greater degree than others. The main driver of efficiency is the switch from the use of the app for ordering to delivery as well. The proportion of users using the app for delivery has increased to nearly 62% in Q2 20, which is twice the level of 30% in Q2 19.

  2. Growth generated by Emerging Asia

    The Woowa deal is one of the largest food delivery deals in Asia. Delivery Hero already has a controlling stake in Food Panda, a leading app in Southeast Asia, as well as its South Korean investment. Food Panda operates in Singapore and Malaysia.

    The Asia food delivery market is at a nascent stage and the vast population and high smartphone usage make it an ideal hunting ground for Delivery Hero.

    Delivery Hero saw 137% revenue growth in Asia in 2019. In H1 20, the Asian growth was 222%.

  3. More EM Acquisitions are looming — watch this space!

    Global food delivery giants such as GrubHub, Meituan and Just Eat are looking for EM acquisitions. We strongly believe that the likeliest targets are in five EM markets —Indonesia, Vietnam, Kenya, Nigeria and Pakistan. Even though the best players are bleeding cash in these markets, that would not be an obstacle as the digital food delivery majors are seeking top-line growth.

The EM names on the bottom of this list could attract attention.