GrubHub Merging 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. 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.”

Venture-capital firms including Amicus Capital LP, Origin Ventures, Benchmark Capital and DAG Ventures LLC have invested a total of $84.1 million in GrubHub. GrubHub has expanded in recent years through purchases of smaller companies including Dotmenu Inc.

Mobile Orders

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. Both 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.

Merger Challenge

Mergers between two closely-held companies are rare because it’s often difficult to combine capital structures and get two sets of investors to agree on terms of a deal, according to Bill Gurley, general partner at Benchmark and a director on GrubHub’s board.

“The real question is how do we split the company amongst the two players,” Gurley wrote in a blog post today. “Had they not started from day one of our discussions with a partnership mindset, we would have never have reached this milestone.”

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.

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