Are you looking to learn more about the billion-dollar deal between Delivery Hero and South Korea? Here, we outline the transaction details and examine who buys Delivery Hero’s South Korea unit. Then, discover how this move will rescue and reshape a major $4bn deal in the delivery space.
Introduction to Delivery Hero and South Korea Business
Delivery Hero is a leading global online food delivery platform, combining digital ordering and on-demand logistics. It operates in over 40 countries and headquarters in Germany. The company offers an extensive global network of restaurant partners and efficient delivery, processing over one million daily orders.
In 2020, Delivery Hero announced the sale of its South Korean subsidiary to South Korean food delivery app owner Woowa Brothers at a valuation of just under $4 billion. The negotiations took several months and included various strategic players such as SoftBank, a massive Japanese investor with stakes in Delivery Hero. After much deliberation, the sale was eventually completed in April 2020 for approximately $4 billion including contingent consideration payments up to 2021. As such, Woowa Brothers have become the new owners of Delivery Hero’s South Korea business.
Delivery Hero to sell South Korea unit to rescue $4bn deal
On November 26, 2020, Delivery Hero SE announced that it has entered into a binding agreement with Quantum Holdco Ltd., an indirect wholly-owned subsidiary of Naver Corporation to acquire Delivery Hero’s South Korea business. The sale will include the food and delivery logistics businesses that Delivery Hero owns in South Korea.
With the sale of its South Korea business, Delivery Hero plans to shift focus to its more profitable markets in Europe such as Germany and the UK. As a result, Delivery Hero can invest further into these regions and continue building their market presence in those countries. Additionally, the sale will allow them to raise more funds for their current programs and operations to move swiftly and grow from there.
Delivery Hero will use the money earned from the sale to bolster their presence in other areas such as Europe, Latin America, Southeast Asia and MENA region. Interestingly, it provides a strong foothold for Naver Corporation which sets them firmly on track for market dominance in South Korea’s local delivery service market. It is part of Naver’s ambition to seize full ownership of the retail market right here at home before expanding globally including e-commerce infrastructure surrounding Southeast Asia’s emerging markets through Softbank Group’s Vision Fund 2 backed Zilingo Pte Ltd (SGX: Z8I).
Overview of the $4bn Deal
Delivery Hero’s South Korea business is being acquired in a $4 billion deal, the largest ever exit for an e-commerce company in the country. The buyer is a consortium formed by mainstream global and Korean investors, including affiliates of Macquarie Capital, Mubadala Investment Company, Kakao Investment and Blackstone Group.
The consortium will pay over $2.2 billion in cash and $1.6 billion worth of Delivery Hero shares to acquire the South Korea business. This includes the food delivery operations and Delivery Hero’s online grocery store platform called Foodfly and convenience store chain Baedaltong. All three units are part of Delivery Hero’s South Korean division which dominates food delivery in the region with over 6 million monthly active users across its platforms and services as of March 2021.
With this acquisition, Delivery Hero will focus on key international markets such as Germany, Mexico, Turkey & UK while strengthening its presence in MENA & APAC regions. The South Korea division will continue to be operated by its current team under new leadership provided by the buyers with significant local market experience to build on from scratch from a strategic operational standpoint.
Impact of the Deal on Delivery Hero
The deal between Delivery Hero and Woowa Brothers will have immediate effects and potential long-term impacts on the German company. However, the most obviously positive short-term effect of this acquisition for Delivery Hero is the almost 4.1 billion euros in cash, substantially increasing its liquidity.
In addition, the company is expected to benefit from integrating South Korea’s leading food delivery platform into its network, allowing customers to order from Woowa Brothers’ restaurants from outside the country via its proprietary platform or regional partner sites.
The long-term implications of this transaction may prove even more significant, as it enables Delivery Hero to strengthen its presence in Asia and significantly expand its customer base into new regions. Additionally, by utilizing Wooha Brothers’ technology and software, Delivery Hero could improve its functionalities while enabling better customer service quality in both the countries where it already operates and new markets. This could help solidify Delivery Hero’s position as a global leader in food delivery services.
Who is Buying Delivery Hero’s South Korea Business
Delivery Hero, the German-based online food delivery company, recently announced its decision to sell its South Korean unit during the third quarter of 2019. This move comes after Yonho Group’s takeover bid, making Yonho Korea’s fourth biggest food delivery app operator.
Yonho is controlled by CJ ENM, one of South Korea’s largest entertainment companies and is owned by Lee Jay-Hyun, who invests in various industries ranging from hospitality to media. CJ ENM plans to expand its presence in the global entertainment and mobile services markets through this acquisition.
The acquisition will bring Delivery Hero’s South Korean business into Yonho’s existing platform, which includes Yogiyo and Baedaltong delivery services. With Delivery Hero now out of the picture, this leaves just three major competitors in South Korea – Woowa Brothers (Baedal Minjok), Coupang Eats (Coupang Express) and Line (Foodfly). These three comprise over 85% of South Korea’s online food delivery market share.
The details of this acquisition are still being finalized as negotiations between Delivery Hero and Yonho continue. However, analysts expect that CJ ENM may be looking to make a play for larger stakes in global markets as it seeks to expand its empire beyond just entertainment and media sectors. With Delivery Hero’s strong presence throughout Europe and North America, Yonho looks poised to seize more opportunities via this purchase.
Regulatory and Legal Challenges
Delivery Hero’s South Korea business has been in the news amid reports that the company wants to sell it to a local player. However, while there are several potential buyers, they all face certain regulatory and legal challenges that could ultimately hamper their ability to complete the acquisition.
The first and most notable challenge that every potential buyer must consider before making an offer is Korea’s ‘Regulation on Economic Concentration for Monopoly Prevention’, commonly known as “Bubble Law.” The Bubble Law has stringent stipulations regarding the number of market players within a particular industry. These restrictions have made it difficult for anyone other than already existing Korean companies to purchase Delivery Hero’s South Korean business. For example, if any non-Korean firm were allowed to purchase Delivery Hero’s business in South Korea, it would create an economic concentration in mergers and acquisitions, potentially leading to anti-monopoly law violations.
Further compounding the regulatory issues is a 2018 court ruling which determined that foreign firms cannot acquire businesses related to food delivery services without being subject to additional regulations. This decision has put particularly large foreign companies at a disadvantage when competing against local players should they attempt to acquire Delivery Hero’s South Korean business.
These two layers of regulations have meant that acquiring Delivery Hero’s South Korea business is no easy task for anyone involved – local or foreign firms alike – and this provides an additional challenge for prospective buyers when attempting to finalize any potential deals for the asset.
Benefits of the Deal for Delivery Hero
The acquisition of Yongma Technologies Corp, the owner of Woowa Brothers Corp, South Korea’s top online delivery service provider, by Delivery Hero (DH) is a bold move. With this move, DH’s net revenue and adjusted EBITDA are forecasted to increase by approximately 40%. In addition, this acquisition will create synergy effects from the operation of Woowa in South Korea and strengthen DH’s global ISO network.
In addition to benefiting from significant growth and improved operating margin ratios in the near-term, DH will also access one of the world’s most lucrative markets. South Korea has high hamburger penetration rates (85%) and is one of Asia’s richest countries per capita. HH intends to utilize this opportunity to capitalize on synergies between its existing portfolio businesses and explore further market opportunities in South Korea. Being a leader in global food delivery platforms with operations across more than 100 countries, HH has now secured its entry into such an attractive market with Woowa Brothers being one of the leading online food delivery platforms in South Korea boasting over 6 million registered users and approximately 30 million annual orders already being processed through their platform as well as expanding presence into neighboring countries.
Conclusion
Coupang, a Korean e-commerce giant, is purchasing Delivery Hero’s South Korea business. The deal is estimated to be worth about $4 billion and will help cement Coupang’s position as the Korean food delivery market leader.
This acquisition signals that the potential value of food delivery services in South Korea is very high and that companies wishing to become involved in this market are incentivized to invest heavily. Furthermore, Coupang’s success with Delivery Hero will surely draw more foreign investors into the market, further expanding its reach and paving the way for a bright future.
