Horizontal Integration on The Menu as Just East Swallows Hungry House

A fascinating takeover was announced at the end of 2016 which, if it is cleared by the competition regulators, will significantly change the nature of competition in the UK takeaway ordering market.

Just Eat announced that it had agreed to purchase Hungry House for a consideration of between £200-240m depending on the performance of Hungry House over the coming months.

The proposed takeover will now be scrutinised by the Competition & Markets Authority (CMA) as it potentially raises issues of competition, with the UK market leader buying the number two player in the market.

Why buy your closest and largest competitor? The answer lies in the final part of the following text from the takeover announcement:

According to Just Eat:

"The Acquisition is consistent with Just Eat’s strategic ambition to accelerate its growth and increase its market presence in every geography in which it operates. hungryhouse is an online food company operating solely in the UK, with a comparable business model to Just Eat.

The Acquisition would generate significant benefits for Just Eat’s restaurant partners and customers. It would create an enlarged customer base for restaurant partners to access, while increasing the breadth of choice on offer to UK consumers through Just Eat’s platform. The combination of the two businesses would also generate compelling economic benefits of scale, with high operating leverage driving material synergies."

So this takeover is all about enabling Just Eat the reduce its unit costs by creating economies of scale and obtaining cost synergies.

These are the classic reasons why firms opt for an external growth strategy of takeovers that involve horizontal integration.

By horizontal integration we mean buying another business that operates at the same stage of the supply chain. Both Just Eat and Hungry House operate mobile-based takeaway ordering apps, servicing the same customers (households) and using the same suppliers (takeaways and restaurants).

Is Hungry House worth paying £200-240m for? In the last year it incurred losses of £13.1m

HUNGRY HOUSE AND THE DRAGONS DEN

An interesting point about Hungry House. This takeover is likely to result in one of the most successful investments ever from Dragons Den. The co-founders entered the Den in 2007 and secured investment from Bannatyne & Caen.