The Competition and Markets Authority (CMA) has provisionally cleared Amazon’s investment in Deliveroo after the delivery giant produced evidence it would not be able to survive due to a downturn in sales caused by the coronavirus.
The CMA was in the second stage of an investigation into the merger following initial concerns that the £440m deal could damage competition by discouraging Amazon from re-entering the online restaurant food market and further developing its presence within the online convenience grocery delivery market in the UK.
However, in recent weeks, the CMA said it had become clear that the coronavirus pandemic is having a significant negative impact on Deliveroo’s business.
The CMA said its investigation has found that Deliveroo is, in many respects, a highly successful company which has grown strongly and now accounts for a significant share of the online restaurant platform market in the UK.
As a developing business, Deliveroo is, however, particularly reliant on continued investment to be able to support its operations.
The ongoing ‘lockdown’ in the UK has resulted in the closure of a large number of the key restaurants available through Deliveroo, and a significant decline in revenues.
While Deliveroo has sought to expand its supply of convenience groceries during the crisis, these sales are limited and have not made up for losses in its restaurants business.
As a result, Deliveroo recently informed the CMA that the impact of the coronavirus pandemic on its business meant that it would fail financially and exit the market without the Amazon investment.
Deliveroo’s submission was supported by evidence from the company’s financial advisers, the CMA revealed.
The CMA has been considering this new evidence as a matter of urgency. It has provisionally concluded that Deliveroo’s exit from the market would be inevitable without access to significant additional funding, which the CMA considers that only Amazon would be willing and able to provide at this time.
While securing additional funding from other sources may have been possible before the coronavirus outbreak, the pandemic has severely limited the availability of finance for early-stage businesses such as Deliveroo.
The CMA currently considers that the imminent exit of Deliveroo would be worse for competition than allowing the Amazon investment to proceed and has therefore provisionally found that the deal should be cleared.
Amazon was the lead investor in a £440m funding round, announced last May, which reportedly gave it a 16% stake in Deliveroo.
Stuart McIntosh, chair of the CMA’s independent inquiry group, said: “These wholly unprecedented circumstances have meant reassessing the focus of this investigation, reacting quickly to the impact of the coronavirus and deciding what it would mean for the businesses involved in this transaction and, in turn, for customers.
“Without additional investment, which we currently think is only realistically available from Amazon, it’s clear that Deliveroo would not be able to meet its financial commitments and would have to exit the market. This could mean that some customers are cut off from online food delivery altogether, with others facing higher prices or a reduction in service quality. Faced with that stark outcome, we feel the best course of action is to provisionally clear Amazon’s investment in Deliveroo.”
The CMA is now asking for views on these provisional findings by Monday 11 May 2020 and will assess all evidence provided before making a final decision.
Roofoods Ltd, the owner of Deliveroo, posted an operating loss of £257m on sales of £476m in the most recent year for which accounts are publicly available. Those results were published in October 2019 and cover the year to 31 December 2018.
A spokesperson for Deliveroo told FEJ: “We are delighted the CMA has found that Amazon can invest in Deliveroo. This investment is a key part of Deliveroo’s plan to provide an even better service to customers, riders and restaurants and, as we’re a British company, this will be a boost to the UK economy.
“The unprecedented health crisis we all face has disrupted businesses across the country. This investment will help us to overcome immediate and long-term challenges, allow us to continue to improve our service for customers, enable us to develop new innovations and offer people even greater choice.
“Everyone at Deliveroo is excited that Amazon, the most customer-obsessed and innovative company in the world, has chosen to invest in Deliveroo’s future.”