Assignment Sample on Strategic Investment Appraisal
Introduction
Appraisal of strategic investment requires evaluation of non-financial and financial consequences that helps to predict the flow of capital and cash with the initial commitment of business. Hence in this report, takeaway of Grubhub by Just Eat Takeaway has been analyzed with the help of investment appraisal techniques. It has been performed with the help of discounted flow of cash (Harris, 2017). Moreover, different assumptions of Just Eat takeaway competitor UberEats have been analyzed and discussed to identify their business evaluation and strategy to take over Grubhub. Pandemic Covid-19 has put a huge impact on the service delivery of food and hence it has been discussed.
1. Business case
In respect of highlighting the business case of an organization, it is important to identify the market condition of that company along with the rate of competitiveness. Hence in respect of farming business analysis and competitor analysis, it has been decided to analyze the financial condition of Just Eat takeaway.
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Market competitor analysis
Analysis of market competition has to assess weakness and strength of rivalries. It helps to figure out the situations that may provide opportunities for the parent company against their rivalries (Trinh & Thao, 2017). Just Eat has been identified as the best example of perfect market fitting in the wrong countries. It has been analyzed by the management that they have built great technology for performing local business in a country having a relatively smaller rate of interest in a takeaway. Compared to other applications of food delivery such as food panda, Uber Eats, Tomato, Just Eat has focused on technology (Businessofapps.com, 2021). This has helped the food service delivery to generate approximately £7,000 per month from a single postcode.
The business model of Just Eat has been highly successful with 10 to 15% generation of commission for each order without any overhead. Although due to the high rate of competition in the market of the UK, Just Eat has decided to run their own delivery service similar to Deliveroo and UberEats (Businessofapps.com, 2021). It has decided to perform partnerships with major brands of food such as Subway, Greggs, and McDonald’s. Hence it can be analyzed from competitiveness of the market in foodservice delivery that Just Eat has been still ahead in the market of the UK due to appropriate business models and strategy for not handling the majority of orders.
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Business takeover risks
There are a wide variety of drawbacks and risks in business takeover in which the most important are involvement of high cost, integration issues, supply and customer demand issues, and employee resistance. Hence in this report risk of business takeover of Just Eat over GrubHub has been discussed. A wide variety of risks has been faced by the Parent company while acquiring GrubHub. Risks have been identified in the form of overpayment for target companies and overestimating of synergies (Morano, Tajani & Locurcio, 2018). Just Eat has faced shortfalls in integration in the form of change in management while acquiring a new company. Overall there has been the risk of lack of transparency and communications.
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DCF analysis
The discounted flow of cash (DCF) has been identified as a valuation method that helps to estimate investment value. Those values of investment are mainly based on the expected flow of cash (Huikku, Karjalainen & Seppälä, 2018). Hence analysis of DCF helps to figure out current investment values that are based on the projections of using the money for generating revenue in the future.
Just Eat has decided to take over GrubHub for $7.3 billion and hence a preliminary analysis of financial entities has been assumed to address the analysis of DCF. This would help to accompany that takeover amount that has been offered to GrubHub would be profitable or not (Theguardian.com, 2021). Hence DCF has been performed for assuming the requirement of finance to value GrubHub (Refer to appendix 2).
It can be analyzed that unlevered flow of free cash helps to remove the capital structure in back on the value of the firms and to make organizations more comparable. The principal application of this type of analysis is to highlight the intrinsic value and equity value by analyzing outstanding shares of the organizations (Saługa et al. 2020). Hence the value of the free flow of cash of GrubHub for 2017 to 2019 has been 87.3, 139.47, and 68.95 respectively (Refer to appendix 3).
2. Business valuation
Business valuation can be identified as a general process to determine the economic value of an organization. It helps to determine their value of the business for a variety of factors such as sales value, the establishment of partner ownership, and taxations (Hardaker, 2018). Hence business valuation of GrubHub has been identified by performing the analysis of DCF so that it becomes easy for Just to Eat or to take over the company.
Financial analysis of the target company has been performed for 3 years, ranging from 2017 to 2019 for justifying the bid price that has been offered to the organization by Just Eat. The bid price has been selected as $7.8billion. The European delivery service of food has agreed to the US-based application with an exciting deal (Theguardian.com, 2021). This would help to create the largest food delivery service outside China. Hence from the analysis of DCF, it can be identified that it would be profitable for the parent company to take over the application of food delivery service.
There has been a surge in the market of food delivery during the pandemic as the government has shut down and prevented restaurants from serving any sort of dinners at premises. Thereby there has been one hope for the people to get delicious food through online applications of food service (Theguardian.com, 2021). It has been confirmed by the parent company to gobble up the target company with the deal of $7.08billion. Moreover, it can be identified from the calculations that it has been profitable for the parent company to take over GrubHub. The online application of foodservice possesses a huge rate of free flow of cash (Grubhub.com, 2021). This deal has been an all-share as the shareholders of the target company would get 0.6710 ordinary shares of the parent company for each of the shares of the target company. This has helped to represent an implied value of $75.15 for each of the shares of GrubHub.
The bid price of $7.08billion has helped the stock price of GrubHub to get popped up. The all-in-stock deal has been considered as profitable for the company as it would help to exchange shares of the target company (Cardao-Pito & Silva Ferreira, 2018). The combination of both the companies would help to process approximately a 593million orders globally for at least a 70million customers. The bid price would be a big step for both the companies to play the role of profitable players in the market of online food delivery (Argilés-Bosch et al. 2018). Former investors of GrubHub would get the opportunity of owning 30% of the shares of Just Eat.
Companies with the largest delivery of meals have driven a surge to overcome the impact of pandemic covid-19. Just Eat has helped to raise the price of shares of GrubHub by 4%. The target company has been profitable as the extended trading has been additionally increased by $62 (Tsai, 2017). Hence both the companies have tried to a line on a particular bit price by remaining odd on other rivalries. It includes the terms of the breakup fee for the target company in case the deal is not possible to get complete (Theguardian.com, 2021). The executive officer of the IT company has helped to start the company and currently thereby to describe another kindred spirit to get taken over by Just Eat.
Food delivery has been considered as one of the important aspects of the economy globally. It has helped several organizations to get benefited in the situation of covid-19. Restaurants have been closed down and hence it becomes difficult for the companies to generate customers and revenue (Kwon, 2018).On the basis of financial analysis, it can be identified that the profit margins of the target company have been tight and can be considered as non-existent in the market of food delivery. This has been due to the high rate of stiff competition and hence the bid price has been a positive sign for GrubHub (Grubhub.com, 2021). Gross sales of the target company have risen by 8% to approximately $1.5billion.
The target company has tried to generate revenue by placing orders through their online platform and mobile applications along with websites or third parties. Hence the bid price has helped the target company to accumulate funds and to increase their rate of shareholders (Erin, Olojede & Ogundele, 2017). It can be identified from the financial analyses that the rate of revenues of the target company has been incensed after the tie-up with Just Eat. Representatives of GrubHub continue to increase their volume of orders and the sales team has apparently focused on adding new opportunities in their business. The largest shareholder of the target company, Caledonia Investments Plc has expressed support for the sale of the organization.
3. Different assumptions of rival bidder
The biggest rival bidder of Just Eat has been UberEats as this company has tried to take over GrubHub. UberEats has tried to make an offer for acquiring the target company and to make a combination of the largest application of food delivery in the United States (Bloomberg.com, 2021). Covid-19 has driven a surge in demand and the companies have tried to make a deal to reach an agreement of increasing their operations in the situation of lockdown. UberEats has been constantly trying to provide more value to their customers all across the business. This has led the rivalry to provide a desperate bid price to the target company (Laguna et al. 2020). The market value of the rivalry has risen by 2.3% with an approximate value of $56billion.
In cost-effectiveness, rivalry has tried to shut up the operations of food delivery in almost seven countries by assuming that their service would be proved as popular. Business of the rivalry organization has been ride-hailing as it has been hammered by the Covid-19 (Li, Mirosa & Bremer, 2020). Dynamic speculation on potential consolidation in the food industry has led to increased the concept of merging and acquisition of companies. Any merger that has been between the largest and major applications has been considered to draw the scrutiny of antitrust (Bloomberg.com, 2021). The deal has led to consolidate the online market of food delivery in the United States for reducing the concept of cash burn.
It has been found that the renewed strength of UberEats for performing a takeover of GrubHub during the crisis has been different from Just Eats. Organizations dealing with the service of food delivery have tried to acquire the concept of merging and acquisition to overcome the loss and share the profitability (Franceschelli, Santoro & Candelo, 2018). Uber has been recently reported to take over the bid for the rival firm GrubHub. The deal has been made to make the largest and biggest company of food delivery in the market of the United States (Bloomberg.com, 2021). Organizations have tried to operate the market of the UK and US for completing the deal of tie-up and generating shares in skyrockets. Uber eats has a long way to go to catch up with the leader of the industry. It has almost captured one-fifth of it when the merger between the middle-size competitors has been able to be given a new way.
4. Economic crisis due to Covid-19
Huge losses have been faced by the organizations due to the impact of covid-19. Moreover, the companies have tried to report search in their business when the dining restaurants have been forced to go cap in the hand of the investors (Clinton & Whisnant, 2019). Just Eat has been recently reported to face a deeper rate of annual loss despite a surge in their revenues. There happens a high rate of demand for the food deliveries in the organization during dependably covid-19. It has been reported that the company has faced a bottom-line loss of approximately £129.5million as compared to £98.5million.
Investments in the market share have become highly competitive during covid-19 and this has made an impact on the economy of the countries. Financial comparisons have been adjusted for taking the account of performing tie-up between the Just Eat and Takeaway (Assets.publishing.service.gov.uk, 2021). Pandemic has gathered speed all across Europe for performing the acquisition of the companies. Economic crisis due to the covid-19 has forced the foodservice delivery companies to sell their shares in the market for having anticipated growth of revenue. In 2019, Just Eat has tried to continue their growth order by revealing a 40% rise in their market share by heating approximately 588 million of deliveries.
There has been much to do rather than performing social distancing and acquiring time as the total of the dawn of covid-19 has appeared to boost the rate of Business and strategies. In the lockdown period, service delivery companies of food have tried to perform business acquisition to support their own business. This has been so as restaurants have been treated badly and forced to shut down (Xie et al. 2021). Apart from the economic crisis, organizations have benefited from the widespread restrictions and the movement as it has helped to enforce the restaurants’ tie-up with other companies.
This has helped to provide abroad pathways for the enterprises that are related to delivery and witness a surge in their demand. Enterprises have been able to include in the service of take-away outlets and to stay open through their online websites (Londonstockexchange.com, 2021). Dining rooms have been shut down and the restaurant has been trying to look forward to opportunities to run their business in a pandemic situation. There have been many organizations that have been forced to work with their competitors during the crisis of the economy in pandemic (Kong et al. 2019). Small businesses in multiple markets such as Yum brands Taco Bell have been quoted as well.
Growth of revenue driven in the online platforms of food delivery include high rateof customers, increase in the rate of orders, increase in the value of gross merchandise. Hence these factors have been affected during the pandemic situation as there has been less number of customers able to visit the restaurants (Laasch, 2018). Market maturity became a key differentiator to calculate both the rate of revenue and growth possible for the platforms of online delivery of food. The minimum level of wages, inequality, and negotiation position of the restaurants with online platforms has been identified as a significant factor (Lüdeke-Freund et al. 2017). It has helped to drive the delivery of an attractive service economy.
5. Learning log
It can be identified that in respect of making a perfect valuation of the business, it is important to calculate the discretionary earnings of the organizations. Moreover, I am required to consider determining liabilities and assets. From each of the sessions, I have been able to learn that competitions in the market help to increase business organizations to boost and produce economy in general. Additionally, I have learned that competitions help to encourage businesses for improving the quality of services and goods they sell. Moreover, they help to attract a wide range of customers and expand the shares of the market.
I have learned that market competitions help organizations to offer the same kind of services and products in the target market. From the sessions, I have learned that in respect of performing business turnover, it is important to analyze the financial positions of both the target and the parent companies. I have learned that Just Eat has tried to offer an exclusive bid price to GrubHub for acquiring their company. In respect of analyzing the risks that can occur while performing a takeover of a business, I have learned that it is important to analyze the business operations. It is necessary to maintain risk management strategies in the business to overcome the financial and business risk.
Moreover, Just Eat has announced merging with other companies to operate in Europe. This has helped me to understand the fact that in respect of acquiring other companies, it is important to provide a high rate of growth to the target companies. Moreover, I have come to learn that parent companies are required to predict appropriate business models for delivering a high rate of services. For example, Just Eat has predicated on the restaurants for delivering customers having briefs of less income and values in the pandemic covid-19 situation.
Conclusion
In the takeover system, there are a wide variety of risks that may affect both the target and the parent companies. Hence it can be concluded that it is important to identify those risks in the form of business and finance. Moreover, it has been accompanied from the whole discussion that there have been sorted reasons for which UberEats have not been able to take over GrubHub. Among which one of the most important reasons has been less attractive bid prices. Just Eat has offered an attractive bid price and the opportunity to the investors of GrubHub of owning their shares. Hence it can be concluded that UberEats have focused on increasing their own rate of revenue and has made different assumptions towards GrubHub. This has led Just Eat to get the opportunity of taking over GrubHub.
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