GrubHub to Merge With Seamless as Food Orders Go Mobile

GrubHub to Merge With Seamless as Food Orders Go Mobile

GrubHub Inc. and Seamless North America LLC, two of the top food-delivery websites in the U.S., have agreed to combine their companies to take on rivals in the growing market for online meal orders.

GrubHub Chief Executive Officer Matt Maloney will become CEO of the merged group, and Seamless CEO Jonathan Zabusky will serve as president, the two said in an interview. Neither company is paying to acquire the other, Maloney said, declining to share financial details of the agreement. The deal now awaits the approval of U.S. regulators, he said.

Food-delivery sites and mobile applications are gaining in popularity as more people order their meals online, instead of calling or picking up orders at restaurants. That’s also driving consolidation, as startups join forces to head off competition from review sites such as Yelp Inc. (YELP) The merger will help the combined company accelerate the addition of users and restaurants, said Maloney, who co-founded GrubHub in 2004.“This has nothing to do with cost savings; it has everything to do with increasing growth,” Maloney said. “We’re totally focused on the top line and how we continue to drive more orders for our restaurants.” GrubHub, backed with $84.1 million in venture capital, has expanded in recent years through purchases of smaller companies including Dotmenu Inc.

GrubHub and Seamless haven’t picked a name for the combined business, Maloney said. GrubHub, based in Chicago, has about 350 employees, while New York-based Seamless has more than 300.

Mobile Orders

GrubHub and Seamless processed about $875 million in combined food sales in 2012, resulting in revenue of more than $100 million, the companies said. GrubHub works with more than 20,000 restaurants in the U.S., while Seamless has 12,000 partners in the country and in the U.K.

Software for smartphones and tablets is increasing the frequency of customers’ food requests, Maloney said. About 30 percent of GrubHub’s orders are done via its mobile programs. Seamless, which introduced an iPad app last year, said more than 40 percent of its orders come through on a mobile device.

The companies plan to combine their research and development to introduce new technologies for online ordering, Seamless’s Zabusky said in the interview. There aren’t any plans to eliminate jobs as a result of the merger, both executives said.

Citigroup Inc. served as an adviser in the merger talks. Reuters reported in November that Citigroup had been hired to lead GrubHub’s planned initial public offering.

“The rumors are true that we had engaged Citi,” Maloney said. “We have been focused on this merger, and we’re not thinking about an IPO right now,” Maloney said.

To contact the reporter on this story: Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net

Updated May 20, 2013, 7:01 p.m. ET

GrubHub and Seamless Create Combo Platter

By SHIRA OVIDE

Even in the fast-growing realms of the consumer Internet, some businesses are best served by old-fashioned consolidation.

GrubHub and Seamless, two nationwide startups used for ordering restaurant takeout by smartphone and computer, said they would merge on Monday.

GrubHub Chief Executive Matt Maloney, who will lead the combined company, declined to discuss valuation.

But the two companies, who have been competing against each other for years, say combined 2012 revenue was “well in excess” of $100 million, on a joint $875 million in food sales.

GrubHub and Seamless make money by collecting a small percentage of restaurants’ sales from the food orders they facilitate. GrubHub says its service includes more than 20,000 online ordering restaurants; Seamless says its service has more than 12,000 restaurants. Together, they process more than 90,000 orders a day, the companies say.

The deal was atypical for the Web business of late, where company “exits” usually entail a public offering or sale to a larger tech company—as underscored by Tumblr’s agreement to be acquired by Yahoo Inc., YHOO +0.23% and Facebook Inc.’sFB -1.87% purchase of Instagram last year.

In an interview, Mr. Maloney poked fun at Tumblr, whose $1.1 billion acquisition agreement overshadowed his company’s news. “They made all of $13 million last year,” Mr. Maloney said, referring to Tumblr’s reported revenue.

Mr. Maloney made his case for the combination, saying that Seamless has a significant roster of restaurants in New York, where it started out, and GrubHub is big in its hometown of Chicago. Seamless has a significant foothold among law firms and other corporate clients who use it to place food orders for employees pulling long hours. GrubHub, thanks to the acquisition of Campusfood more than a year ago, has a presence with college students.

GrubHub is known for its back-end technology to make effective online ordering at mom-and-pop restaurants, while Seamless has received plaudits for its mobile ordering apps.

Still, Mr. Maloney said GrubHub and Seamless would remain separate brands.

Both companies appeared to be on an independent path to an initial public offering before merger talks started in recent months.

“Had this opportunity not arisen…we probably would have pursued that,” said Bill Gurley of Benchmark Capital, which is a GrubHub investor.

Mr. Maloney said GrubHub and Seamless make sense in combination, and he said it would have been tougher to merge if either or both companies were public.

Consumer-Internet companies have had a bumpy track record in recent years, making potential public offerings for GrubHub and Seamless not a sure thing. For every public-market success story like Yelp Inc., YELP +0.58% there are startups likeGroupon Inc. GRPN +0.14% and Facebook that are trading below the stock prices at which they went public.

Mr. Maloney said the closely held companies’ existing investors aren’t cashing out. Existing stockholders are rolling their stakes in together, as opposed to a traditional merger in which one company’s stockholders buy out the other’s.