News broke last week that Uber and Postmates were negotiating a take over. This morning, Uber and Postmates announced that a deal had been reached.
Uber will buy Postmates for 2.65 billion dollars worth of stock. Postmates will fall under current Uber Eats management. Bloomberg reports that Bastian Lehmann and his team will stay on to manage Postmates as a separate service. The deal is expected to close early in 2021.
I wrote earlier about some of the things I thought would happen if a deal goes through. Now that we have confirmation, here are some key takeaways about Uber’s acquisition of Postmates.
Nothing will change for several months.
The deal is not expected to close until the first quarter 2021.
Any kind of merger like this has to get approval, and this has to happen in a lot of places. The main stock holders and investors at Postmates have pledged support for this acquisition. However, news accounts state that it still has to get formal approval.
This also has to get approval from regulatory agencies. Any time you have two of the four major competitors in the same market merge, there will be concerns about creating a monopoly.
This was an issue that got in the way of a potential merger of Uber and Grubhub. That merger would have given the combined companies more than 50% market share. Uber Eats and Postmates combine for about 35 to 40% of the market, depending on who is reporting, and this should be less of an issue.
But here’s the thing: Uber Eats and Postmates will be Uber Eats and Postmates, each running independently of each other, for at least the remainder of the year.
So no, Postmates contractors don’t wake up today being contractors with Uber Eats.
This is NOT a done deal.
An agreement has been reached.
The deal has NOT been closed. As mentioned above, this takes some time.
Uber released a presentation outlining a lot of the details of the purchase. It was interesting that they went into great detail explaining that things could happen that could stop this from happening. Here are a few of the factors that could prevent the closing of the sale:
- Failure to obtain regulatory approval
- Failure to satisfy terms of the closing conditions on a timely basis
- Costs or expenses related to the purchase including the cost of integration of the Postmates business
- Failure to realize the expected benefits of the deal
- Inability to keep key personnel
- Changes in legislation or government regulations related to the businesses.
- The economy takes a dump in such a way that the acquisition doesn’t make sense.
This is my paraphrase of some of the conditions.
Let’s face it: a lot could happen between now and first quarter 2021. I mean, look how much has happened in just the past few months.
Ultimately either side could pull out of the deal. It would be expensive, but it’s not out of the question.
Postmates will continue to operate as a separate app from Uber Eats
As part of the announcement, the Uber Eats division will manage Postmates, but Postmates will continue to operate as its own company. Bastian Lehmann will continue to lead the Postmates business.
This was the scenario that I expected to see. Seeing how Caviar has continued to operate as its own app after being bought by Doordash, it just made sense that Uber would do the same thing with Postmates.
In the announcement, Uber spoke of the companies being complimentary. What I expect to see is Postmates focusing more on merchandise, non-partnered restaurants (order and pay) and possibly with mom and pop restaurants.
It looks to me like you will continue to have the opportunity to deliver for both platforms. This means our options as independent contractors will not be limited by this merger.
AB5 could be a massive wrench in the deal.
Maybe this is just an extension of Takeaway number two, but it’s big enough that I think it warrants its own takeaway.
I want to highlight one risk that Uber outlined. They said there were some risks that could get in the way of the transaction.
changes in legislation or government regulations affecting us or Postmates.One of the risks listed by Uber that could derail this purchase, per their presenation from July 6, 2020
There are a number of states trying to push these companies into using employees instead of independent contractors. California has already passed AB5, which sets restrictions on who can use contractors. If the state cracks down on that before this transaction is completed, it could change everything.
Further down in the same presentation, Uber outlines the key cities for Postmates: Los Angeles, Las Vegas, Orange County, San Diego, Phoenix.
Notice how many are in California?
A crackdown on misclassification in California would be disastrous for Postmates. I’ve seen reports that 40% of their business is in California. Having to switch to an employee model in California is a major change and a huge expense. Postmates is far more vulnerable to those changes than anyone else.
Bottom line: I don’t think it’s a given that Postmates will survive long enough for this deal to close.
Reading between the lines, I think Postmates is in more trouble than they let on.
I think they had to do this deal. There were reports that they might offer their own IPO or sell to a third party shell company. But when all was said and done I get the feel they were kind of forced into this sale.
There are a couple of things that stand out to me. Maybe I’m pulling things out of thin air, but I find them interesting.
Bastian Lehmann has been strangely silent about this. This is a guy with a lot of bravado on Twitter. Several hours after the announcement, he’s said nothing other than responses to some congratulatory posts. Nothing on Postmates, their website, their Twitter, anything. So far all I’ve found is just a press release.
The other thing I find interesting is this little tidbit in the Financial Impact portion of their presentation PDF: “Uber has committed to provide bridge financing to Postmates during the process of obtaining approvals.”
To me that looks like, Postmates is going to need a lifeline to survive.
And in a year that has seen so many curveballs, I’m kinda wondering if they will.
Some questions I have going forward.
Let’s be real here: All five takeaways could really be questions. Those are things that come to mind when I go through the details of the transaction. I could be wrong on all of them.
That said, there are some things I wonder about.
How much control will Bastian Lehmann have over Postmates as a subsidiary of Uber Eats.
Postmates won’t be a division of Uber. They’ll be a company under the Uber Eats division.
Bastian Lehmann is going from CEO to manager. (Granted, an extremely rich manager). How is that going to go?
There are some things that I always question about how Postmates does things. If you follow me much, you know that THE major issue I have is how Postmates will stack multiple orders on you without asking for your approval.
I noted in my original article on this merger that I don’t think Uber will let that practice stand. Of all the gig companies, Uber seems to be the most conscious about not crossing any line that could indicate control of contractors. They know how high the stakes are if they have to use employees.
Will the Postmates management team be allowed to continue some of those practices? I’m curious to see.
Will there be direct competition between Uber Eats and Postmates?
It looks pretty clear that the idea is that each company will fill a different niche. Postmates will lead the charge on some of the things they do that are unique from Uber Eats.
Postmates has a lot more non-restaurant business than Uber Eats. They’ve developed some innovative interfaces to their app that allow just about any kind of store to utilize them for delivery. In some ways I wonder if Postmates won’t become the Instacart of the Uber empire.
But what happens where both companies work with the same restaurants? Will that continue? Or will they divide and conquer with those overlaps?
My background is in the telecom equipment industry. I worked with Panasonic and NEC, both companies that had two completely different companies that competed with each other. They handled it from different perspectives and different sales channels. Panasonic eventually closed one of their companies, while NEC eventually morphed the two into one. It’s a different industry, but it makes me think they may stay in competition with each other.
I kind of think it’s crucial that they do. I think there are going to be a lot of Postmates customers who would stick with Postmates but not necessarily cross over to Uber Eats. With that happening, Uber Eats misses out on a lot of the expected growth of market that would happen from this purchase.
What will this mean to multi-apping?
In the time I was delviering Postmates, I used them almost exclusively as a multi-app partner with one or more other platforms. Postmates wasn’t busy enough in my market to rely exclusively on business from them, so I had to have other apps turned on.
I think these are companies that understand that’s part of the landscape with contractors. They seem to accept that. At least, they don’t seem to fight it as much as the others.
But how does that work once the companies are merged, a lot of the technology and the contracting and back office stuff has been integrated?
Is it going to become impossible to accept a Postmates offer while you’ve got the Uber Eats app on?
Here’s the flip side of that question. I was able to listen to the tail end of Dara Khosrowshahi’s conference call with investors announcing this purchase. He talked a lot about how this merger opens the door to greater efficiency. Is it possible they’re thinking they could stack Postmates and Uber Eats orders at the same time?
Will there be crossover between companies?
That last question just seems to morph into another question all on its own.
There are a few places that I know use these delivery platforms as a back up for when they can’t keep up with their deliveries. If a delivery is going too far or they just don’t have enough of their own people, they’ll request that one of these delivery platforms fill in for them.
I wonder if there’ll be some of that. With plans being to have them operate individually, if Postmates is too busy to get deliveries filled, could Postmates orders flip over to Uber Eats couriers? Or vice versa?
Does this mean an end to Uber Eats’s venture into order and pay?
In early March, I received an offer from Uber Eats. They were rolling out a new order and pay feature, and did I want to participate? Uber Eats was the last of the four major platforms to start accepting deliveries from restaurants who did not partner with the company.
I have my debit card. I’ve never used it.
Covid-19 kind of got in the way. I opted in to such offers because of some bonuses, but never received any.
I wonder if this sale means they may completely abandon that model. That might be part of the rationale for buying Postmates. Postmates has the procedure down as well as anyone. Maybe the acquisition of Postmates is their way of taking on this practice.
There’s been a lot of negative feedback from other companies utilizing this practice. This is one way that Uber Eats could stay above the fray.
I would be okay with that.
What will this mean to courier pay?
Right now, Uber Eats is probably the best paying as far as what they pay couriers out of their own pocket.
At the same time, they’re next to last (out of the major four) in tipping. Guess who’s behind them?
Until late last year or early this year (depending on your market) the two companies had very similar pay models. It was all based on time and distance. To Postmates’s credit, they’re the one company that has maintained a transparent pay model. Uber Eats recently changed to a non-transparent system, however you can tell that aspects of how they pay are still based on actual time and distance.
Will one adopt the pay model of the other? Will they morph into a combination of the two? Or will they remain separate?
What questions do you have about Uber buying Postmates?
I could easily keep asking questions here. At some point I have to stop writing, right?
What do you think is going to happen as a result of this? I liked one theory someone suggested in response to my prediction of what would happen with a merger.
It was suggested that maybe that’s how they could become profitable, by putting it all on pay per view.
But seriously, what do you take of all this? What do you think will happen and why? What kind of questions do you have about what will happen? Comment below and let’s keep this discussion going.