If you are wondering whether Prosus will squander the Tencent windfall, Friday’s announcement that it has struck a deal with Just Eat Takeaway to buy the remaining stake in a Brazilian food delivery platform should make you feel slightly at ease.
Prosus, which houses Naspers’s global internet assets that include its prized stake in Chinese tech behemoth Tencent, agreed to pay out €1.8bn to buy the remaining 33% stake in iFood, a platform that ranks as one of the most attractive food delivery businesses in one of the world’s biggest markets.
The deal hands Prosus sole ownership of the business that has grown the value of annual gross merchandise 60% on average over the past few years. It has cornered the Brazilian market, boasting more than 80% market share and forcing Silicon Valley giant Uber Eats to abandon the Brazilian market in an implicit admission of defeat.
It is the latest big-ticket deal by Prosus, which is sitting atop a huge capital stack after selling a portion of its more than a trillion rand stake in Tencent. In 2021, it struck two deals with a combined equivalent value of about R73bn — largely drawing bravos from the investment community for the unassailable industrial merits behind the acquisitions of an Indian payment platform, BillDesk, as well as training and education start-up Stack Overflow.
Sure, the transaction to buy out minorities in iFood lacks obvious strategic logic. Prosus already owns a controlling stake in iFood, which means buying all of it changes nothing about the way to manage it or what direction it should take.
But looking at it purely from the financial standpoint, there isn’t much not to like about CEO Bob van Dijk’s move to buy out Just Eat Takeaway. For starters, €300m of the purchase price will only be paid if and when battered valuations in the technology sector improve over the next 12 months. The way the transaction is put together should protect Van Dijk and his team from overpaying at a time that steeply rising food and fuel prices threaten to force consumers to cut back on nonessential spending.
Second, the deal values iFood at about €5.4bn, or just under five times its 2021 revenues of €991m. That might look like a generous premium when you consider that Just Eat Takeaway and Delivery Hero — a German-based company in which Prosus owns a stake — fetch an average of one times their market capitalisations. Unlike the two European companies, iFood is profitable, a rare sight in the takeout technology sector that has attracted high-stakes bets that consumers’ love for convenience will ultimately turn the industry into a money-making machine.
For good measure, Prosus is paying 22% less than a €2.3bn offer for the stake Just Eat Takeaway said it had rejected in 2021, a near 50% discount to what some really optimistic analysts say the business should be worth, describing it as a “highly growth” asset.
It is not the first time Prosus has given wary investors a reason to believe that it is not about to squander the Tencent windfall even as Van Dijk faces pressure to show that it is more than its nearly $200bn stake in China’s internet titan. In 2019, shareholder investors were reluctant to give Van Dijk the thumbs up when he tried to pay $8bn for what was then Just Eat, before it emerged with Takeaway.com.
He walked away from the transaction in 2020, but only to be back in the mergers & acquisitions (M&A) scene a few months later after the pandemic sparked a global hunt for consumer internet takeover targets, pushing up valuations to levels that were difficult to justify. Shareholders would have rightly frowned upon an attempt to deploy a R120bn M&A budget Prosus flaunted in April 2020 to outbid a rival offer for eBay’s classifieds business.
As far as capital discipline goes, Prosus is establishing an admirable track record.
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