Since Grubhub is a public company they need to report the expected financial impact of their acquisitions. When Grubhub purchased LevelUp for $390M in cash, it wasn’t because LevelUp was accretive to earnings:
Grubhub expects the LevelUp transaction to contribute revenues of approximately $2 million to third-quarter results. However, the deal will negatively impact EBITDA by less than $1 million.
Let’s do a little math on this.
If we assume consistently quarterly revenue, LevelUp was doing about $8M in annual revenue. It also looks like LevelUp was losing around $1M a quarter in EBITDA, for annualized losses of $4M. That’s absolutely bonkers when you consider LevelUp has raised more than $100M since inception (and pivot) in 2009.
At today’s public software revenue multiples of 8x, LevelUp might have been a $65M company on fundamentals. That they were losing considerable amounts of money means you might need to adjust the numbers downward. But to pay 50x revenue for LevelUp is batshit crazy unless we’re talking about the clusterf*ck that is brick and mortar.
We’ve harped on this topic forever, but you’re not running into ex-Goldman Sachs and McKinsey employees in brick and mortar. The industry just doesn’t attract that caliber of person for a litany of reasons that we won’t rehash here. Accordingly solutions in this market are disastrously antiquated relative to other industries and the uptake of even common-sense fixes is virtually nonexistent. That’s why the industry not only still operates like a medieval tavern, but is massively fragmented. Seriously, we can’t tell you how many times we’re working with investors who tell a promising startup to focus their time and effort on a totally different market.
Ouch.
Grubhub, no doubt after attempting to deal with the hodgepodge of POS providers that inexplicably still exist despite horrendous product, overpriced hardware, and illusory support, decided it was worth several hundred million to buy someone who has suffered through these challenges already. Think about that for a second:
Dealing with local merchants (whose personnel went on to build things like legacy POS systems) is SO BAD it’s worth hundreds of millions to avoid it!
It really is that simple: the market has put a price on the hassle of dealing with incompetence.
Talk about a sober look in the mirror for the industry.
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