Antitrust approval will be the largest hurdle for Southeast Asia-based super app Grab as the ride-hailing and food delivery firm flagged as a potential suitor for Foodpanda’s business in selected markets, analysts said.

“We think antitrust approval will be the biggest hurdle for Grab, while sale to deep-pocketed buyer could disrupt the current competitive landscape,” CGS-CIMB analysts Ong Khang Chuen and Kenneth Tan wrote in a note dated September 21.

“In our view, while it does make sense for Grab to consider such an acquisition given its strong net cash position and potential to enhance its economies of scale, we see significant regulatory hurdles,” the analysts wrote.

Last month, Berlin-based Delivery Hero confirmed it is in preliminary talks for a partial sale of its Asia food delivery business. Grab flagged as a potential suitor.

The deal’s value is still under negotiation, according to media reports. The Wirtschaftswoche business magazine first reported the news, saying Singapore-headquartered super app Grab could pay a little more than 1 billion euros ($1.07 billion) for the unit.

According to the report, Delivery Hero plans to sell its activities under the Foodpanda brand in Singapore, Cambodia, Laos, Malaysia, Myanmar, the Philippines and Thailand.

“Assuming a merger, Grab will have a monopolistic market share ( more than 90 percent) in online food delivery in Singapore, Malaysia and the Philippines,” the analysts added.

“The talks are in the preliminary stage, and we do not know if this will lead to a definitive agreement,” they wrote.

Momentum Works, a venture outfit, estimated Foodpanda’s Southeast Asia GMV at $3.1 billion in 2022. According to the same report, Foodpanda ranked second by market share in Singapore, Malaysia and the Philippines, and third in Thailand in 2022, the analysts noted.

“Our back-of-the-envelope calculations point to an implied valuation of 0.35 times trailing Enterprise Value (EV)/Gross Merchandise Value (GMV) or 5.3 times trailing EV/sales (assuming Foodpanda has the same net take rate as Grab), which we think appears reasonable. Grab trades at 6 times trailing EV/sales,” the analysts wrote.

On the other hand, the analysts noted that should the sale go to a deep-pocketed buyer seeking to expand presence in/enter Southeast Asia, they see potential disruption to the existing healthy competitive landscape in the region’s on-demand industry as scale and order density are key to driving profitability in the low-margin food delivery business.

Maybank Kim Eng Research: Grab’s acquisition of Foodpanda potentially increase economies of scale, margins

In a separate note on Sept 25, Maybank Kim Eng Research noted Foodpanda ranked number two by market share in Singapore, Malaysia and the Philippines and number three in Thailand in 2022, with an estimated GMW of $3.1 billion in Southeast Asia.

“Buying a competitor definitely makes sense for Grab given its strong net cash position (S$6.7 billion in cash and liquid investments). Assuming a merger, Grab would consolidate its market leadership with a monopolistic market
share (more than 90 percent) in online food delivery in Singapore, Malaysia and the Philippines,” analyst Kelvin Tan wrote.

“This would potentially increase its economies of scale and profit margins while reducing marketing expenses on customer acquisition for its delivery segment. However, Grab might face similar regulatory hurdles from CCC (Competition and Consumer Commission of Singapore) post sale of Uber’s Southeast Asian business to Grab in Sep 2020,” he added, concurring CGS-CIMB’s analysts’ views.

Moreover, Maybank Kim Eng’s Kelvin said should the sale go to a new entrant seeking to expand in/enter Southeast Asia, this could be a concern to the existing healthy competition in the region as scale and order density are key to driving profitability in the low-margin food delivery business.

“We believe competition has become more rational, especially for food delivery, with peers cutting back on promotion intensity to boost profitability and Grab focusing on sustainable growth as it expands its market share leadership. After the pandemic eased in 2022, the food delivery market slowed down while Grab has outperformed its peers in
terms of revenue and strategic presence,” he explained.

Founded in 2012, Grab is a superapp in Southeast Asia, operating across the deliveries, mobility and digital financial services sectors.

Serving over 500 cities in eight Southeast Asian countries, Grab enables users to order food or groceries, send packages, hail a ride or taxi, pay for online purchases or access services such as lending and insurance, all through a single app.

Last month, CNBC reported that Foodpanda is conducting its latest round of layoffs as the need to be “more agile remains critical.”

Delivery Hero is a delivery platform, operating its service in around 50 countries across Asia, Europe, Latin America, the Middle East and North Africa. The company started as a food delivery service in 2011 and runs its own delivery platform on four continents.

Additionally, Delivery Hero is also in the quick commerce services, aiming to bring groceries and household goods to customers in under one hour and often in 10 to 15 minutes. Headquartered in Berlin, Germany, Delivery Hero is listed on the Frankfurt stock exchange since 2017, and became part of the leading index DAX (Deutscher Aktienindex) in 2020.

Delivery Hero announced the acquisition of Foodpanda in December 2016. Foodpanda added 20 new countries in Eastern Europe, MENA and Asia to Delivery Hero’s platform then.

Foodpanda, headquartered in Berlin, is an online food ordering and delivery marketplace processing approximately 2 million monthly orders across 22 countries in Eastern Europe, MENA and Asia with market leading positions in 17 of them, Delivery Hero said in a statement then.

Delivery Hero’s foodpanda’s business could be sold to Grab? – report