Instacart would reportedly be an expensive impulse purchase
DASH•DoorDash is considering an offer for Instacart of about $17 billion, reportedly 42% above Instacart’s pre-sale-news share price. The article estimates DoorDash would need at least $630 million in annual efficiencies to justify the mooted $5 billion control premium.
1. Possible offer
DoorDash is considering acquiring Instacart for approximately $17 billion after Uber Technologies decided to move on, the article reports. The potential offer would be a 42% premium to Instacart’s share price before news that it was seeking a buyer.
2. Savings hurdle
DoorDash would need at least $630 million in efficiencies to justify the mooted $5 billion premium for control of Instacart, based on a 20% tax rate and a multiple of 10. Those savings would amount to a third of Instacart’s operating expenses forecast for this year.
3. Returns and competition
Instacart’s estimated operating profit is $1.2 billion, but adding the synergies and accounting for taxes would produce a return slightly below its estimated cost of capital of almost 11%. Instacart serves supermarkets including Kroger, while Amazon.com and Walmart dominate grocery delivery.
