The year 2019 turned out to be the most successful year for the Korean food delivery app, ‘Baedal Minjok’ operator company – the Woowa Brothers and its investors. The startup had attained the unicorn status, just before entering 2019 and the company exited the year with a successful takeover by German company Delivery Hero for $4 billion.
Woowa Brothers – A startup to a profitable deal
Launched in 2010, Woowa Brothers has been one of the fastest growing online food delivery service providers in Korea, with over 30 million orders per month. The deal of Woowa Brothers with Delivery Hero (DH), its closest rival in South Korea operating the app ‘Yogiyo,’ is considered a strategically smart move by experts. On the one hand, the acquisition will strengthen the capabilities of both companies facing a rise in the number of competitors like Uber Eats (that pulled out of the Korean market), Coupang Eats, etc. And on the other hand, a foreign merger dissolves the pressure of putting out an Initial Public Offering (IPO) in the domestic market for Woowa Brothers.
Woowa Brothers have successful investments since its founding with global venture companies putting in large stakes in the company. The startup had seen an investment of 40 billion won or about $ 34 million from Goldman Sachs in 2014, 57 billion won from Hillhouse Capital in 2016, and 35 billion won or about $ 30 million from Naver. In December 2018, the startup joined the ‘unicorn’ billionaire club with investments worth $320 million from Hillhouse Capital, US-based Sequoia Capital, and GIC, Singapore’s sovereign wealth fund.
The Joint Venture with DH will see the German company acquire an 87% stake held by Woowa investors, with a future vision to acquire the remaining 13 % from the management. The CEO and founder of the company Kim Bong-Jim will become the Chairman of the Board of Directors and Executive Director of the Joint Venture to manage the operations of the Delivery Hero group in the Asia Pacific region and oversee expansion in the region. The acquisition will help Woowa Brothers leverage the global expertise of Delivery Hero and expand its foothold in the Asian region. “The partnership will help achieve economies of scale to compete against global and domestic IT giants effectively. Together we aim to cultivate and invest in the development of online food delivery services for the benefit of consumers, restaurants and riders,” is what Kim Bong-Jim has said in a media statement about the merger. The acquisition, termed as the largest food delivery service deal globally, is considered as the most significant of inbound investment in the South Korean startup and technology sector.
Delivery Hero to get a stronger foothold in the Asian market
For German company Delivery Hero, the acquisition means a deeper penetration in the fast-growing Korean food delivery market and further expansion in the Asia-Pacific region. South Korea’s online food delivery market has doubled in the past five years to $5.9 billion. It is much bigger than Japan and Germany markets combined, trailing only China, the UK and the USA, as per a report by Euromonitor. The increase in single people households in Korea means a boom in food delivery services, which is expected to cross $9 billion by 2023. DH will now have enough leverage in the domestic market in Korea with a merger with its once rival company Woowa Brothers.
As the European food delivery market gets more competitive, the Woowa deal will prove to be a strategic investment for DH.
Woowa Investors hit the jackpot.
The investors in the Woowa Brothers’ startup are reaping fruits of profit with the acquisition deal. The early-stage investors like Bon Angels Venture and Naver have got multiple returns on their investment amount with the deal. Bon Angels had invested 300 million won or about $ 259,796, and Naver had put in 35 billion won or about $30 million. For Bon Angels – the profit is almost 1000 times the investment it made and Naver earned nearly six times the investment made two years ago. From selling its 3.72% (221.2 billion won or $ 191 million) share, Naver will receive $ 100 million (or 116.6 billion won) in cash, and $89 million (103.8 billion won) in Delivery Hero’s share (0.6%).
Besides, the other major investors in Woowa Brothers, such as Altos Ventures, Goldman Sachs, Sequoia Capital China, and Government of Singapore Investment Corporation (GIC), are also likely to benefit significantly from this deal. The 13% shares that Kim Bong Jin and other significant executives hold will be eventually transferred to Delivery Hero shares. CEO Kim will not leave the company but become the leader of the joint venture (JV) between Delivery Hero and Woowa, “Woowa DH Asia” to expand food tech business beyond Korea, to Asia.
Awaiting the Final Leap
Now, with DH’s Yogiyo and Baedal Minjok merger, the company may get a whopping 98.7 % of the user market for the food-delivery related app. According to a data released by the Korea Consumer Council in July 2018, the market share of Woowa Brothers was 55.7% of the nation’s delivery, Yogiyo 33.5%, and rest 10.8%. This has triggered concerns about hampering competition in the Asian country, and the deal is now under the scrutiny of South Korea’s Fair Trade Commission (FTC). The process by FTC to look into the deal’s potential to restrict competition and result in price hikes and price-fixing could take at least 120 days.
Meanwhile, as the global phenomenon of acquisitions in the food-delivery app service gets heated, the December deal between DH and Woowa brothers has been termed as one of the biggest to date by market analysts. In the US, DoorDash Inc. bought Square Inc.’s Caviar app for $410 million in August, and in the UK, Takeaway.com, and tech investment firm Prosus NV are trying to acquire Just Eat Plc valued at about $5.52 billion. Delivery Hero had sold its German food delivery businesses to Takeaway.com last year. Woowa Brothers and Delivery Hero’s joint venture will be named Woowa DH Asia and will be based in Singapore and will tap 11 other countries in the sub-continent for expansion.