GoPuff a likely merger target as delivery sector falters

GoPuff's most likely scenario is to either sell to or merge with a strategic acquirer such as Uber, Instacart or Doordash, sources familiar with the company say.

Why it matters: The food delivery sector is a competitive, low-margin business, and continued consolidation is likely as players contend with unprofitable capacity and infrastructure.

Driving the news: Turkey-based Getir's recent acquisition of FreshDirect is one of the latest M&A moves after the acquirer laid off employees and slashed its valuation.

Details: Philadelphia-based GoPuff doesn't have the financials to go public, even if the IPO market was open, the sources say.

• The pros of buying GoPuff include taking on its warehouses and liquor licenses, which it owns, they say.
• The caveat, though, is it does have some costly infrastructure that would need to be shut down, they say.

What they're saying: "These claims are categorically false. The company is in a strong financial position, with multiple years of runway, and continues to drive significant quarterly growth," the company responded in a statement.

• "We have no interest in selling the company and have not been in the market to raise capital," the company adds.
• A separate source close to the company's thinking says that while it is not yet profitable, adjusted EBITDA on a monthly basis has improved by 75% between January 2022 and September 2023.
• Plus, net revenue is up 20% year-over-year in Q3, the source says.

The intrigue: One of the sources emphasizes that GoPuff is not just a delivery service, but also a high-end convenience store retailer (it's expensive to have snacks immediately delivered).

• There's an outside chance that a convenience store chain — to build out its tech while extracting synergies — could buy GoPuff.

Catch up fast: GoPuff has executed a series of layoffs over the last year, most recently shedding 2% of its workforce in March.

• This followed GoPuff's hyper-growth period, wherein the startup raised nearly $5 billion and had a post-money valuation of $15 billion in 2021, per PitchBook

Zoom in: Another high-end entrant in the convenience space is Foxtrot, which a source says (and another confirms) was exploring options, including raising money, being acquired or merging.

State of play: Whether they focus on restaurant, convenience or grocery, delivery services are effectively competing with one another. As such, the space has seen a wave of consolidation.

• Doordash acquired Wolt for about €7 billion, which was completed last year.
• Just Eat Takeaway acquired Grubhub for $7.3 billion, which was completed in 2021.
• In the grocery delivery space, Misfits Market is seeking more acquisitions after completing the integration of Imperfect Foods.

By the numbers: GoPuff was reported to be raising money last year, specifically debt, per PitchBook.

• It has raised approximately $4 billion and was most recently valued at $15 billion, per a source.
• Foxtrot, meanwhile, had raised nearly $200 million as of February and had a post-money valuation of $475 million as of early 2022, per PitchBook.

Foxtrot did not respond to a request for comment.

Editor's note: This story has been corrected with the company name Misfits Market (not Misfits Foods).