Competition and Markets Authority Approves Amazon’s Investment in Deliveroo as COVID-19 Harms Company’s Financial Position [u]

This is interesting because it is indicative of the economic impact of the COVID-19 pandemic.

The UK Competition and Markets Authority (CMA) has provisionally approved Amazon’s (NASDAQ:AMZN) investment in Deliveroo. Before the Coronavirus, the investment was not a given as the CMA was “concerned that the deal could damage competition by discouraging Amazon from re-entering the online restaurant food market and further developing its presence within the online convenience grocery delivery market in the UK.”

Amazon is, of course, one of the most valuable companies in the world that has hugely benefitted due to the dramatic shift to online purchasing as lockdown orders have become the norm for many countries.

Deliveroo is an online food delivery company founded in 2013 and based in the UK. Headquartered in London, Deliveroo employs over 2,500 individuals in offices around the globe. The company operates in over 500 towns and cities across 13 markets, including Australia, Belgium, France, Germany, Hong Kong, Italy, Ireland, Netherlands, Singapore, Spain, Taiwan, United Arab Emirates, and the United Kingdom. In May of 2019, Deliveroo raised $575 million in what has been described as the UK’s largest raise for a British startup ever.

The fact that CMA felt compelled to approve the investment due to the “deterioration in Deliveroo’s financial position as a result of coronavirus (COVID-19)” is telling.

This also highlights the need for the UK government to be sensitive to the needs of high growth firms that are in dire need of capital. Deliveroo’s business should be doing well as food delivery is in demand.

To quote the CMA:

“The CMA’s investigation has found that Deliveroo is, in many respects, a highly successful company which has grown strongly and now accounts for a significant share of the online restaurant platform market in the UK. As a developing business, Deliveroo is, however, particularly reliant on continued investment to be able to support its operations.” [emphasis added]

Early-stage companies frequently operate at a loss and plan successive funding rounds to fuel growth. VC’s are typically inclined to back fast-growing firms that are successfully executing on their mission. The Coronavirus crisis has caused a good amount of risk capital to push pause and some VCs have looked to re-value investments. In some cases, VCs have backed out of investments due to market risk. Policymakers must be sensitive to this reality as Deliveroo’s financial challenge may be representative of the challenges other early-stage ventures are experiencing.

Udpate: A Deliveroo spokesperson has shared the following comment on the CMA’s decision:

“We are delighted the CMA has found that Amazon can invest in Deliveroo. This investment is a key part of Deliveroo’s plan to provide an even better service to customers, riders and restaurants and, as we’re a British company, this will be a boost to the UK economy.

The unprecedented health crisis we all face has disrupted businesses across the country. This investment will help us to overcome immediate and long-term challenges, allow us to continue to improve our service for customers, enable us to develop new innovations and offer people even greater choice.

Everyone at Deliveroo is excited that Amazon, the most customer-obsessed and innovative company in the world, has chosen to invest in Deliveroo’s future.”

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