The korea economic daily

Germany-based online food delivery service Delivery Hero SE has kicked off the sale process of South Korea's second-largest food delivery app, Yogiyo, which is estimated to fetch up to 2 trillion won ($1.8 billion), according to investment banking sources on Mar. 15. 

Delivery Hero has publicly shared details of Yogiyo's earnings for the first time. Last year, the company logged 353 billion won ($311.3 million) in revenue and an EBITDA of 47 billion won, a surprising turnaround in just a year considering the company reported an EBITDA loss of nearly 60 billion won in 2019.

Bidders starting to review the deal are caught in a complicated situation. There is some doubt over the company’s valuation rising drastically ahead of the sale although it is indisputable that delivery apps saw exponential growth and a surge in transactions during the global pandemic.

There are also conflicting views on the certainty of the deal’s success. From a large private equity firm’s point of view, Yogiyo does not own any tangible assets and its earnings fluctuate significantly, making it difficult to secure acquisition financing. 

Some potential buyers are aiming to take advantage of the deal's impending deadline. According to industry watchers, it's a rare opportunity to acquire a 20% market share in the fast-growing delivery app market.

However, some say that it won't be easy to finalize the deal unless the sell-side lowers the price to around 1 trillion won ($882 million).

“Some bidders don't expect heated price competition since Delivery Hero has blocked strategic investors from participating in the deal," said an investment banking official.

It is understood that the sell-side has not extended invitations to companies that may emerge as industry competitors, such as e-commerce giant Coupang Corp. and platform titans Kakao Corp. and Naver Corp.

YOGIYO REVAMPS R&D TO BOOST COMPETITIVENESS

Meanwhile, Delivery Hero Korea recently announced plans to beef up Yogiyo's IT delivery service by expanding the R&D division fivefold and increasing salaries by up to 20 million won.

“Technological competitiveness is extremely crucial in the delivery app market, which is undergoing explosive growth,” said a DH Korea official. “Boosting the R&D division is an inevitable move to be able to offer services that set the company apart,” the official said.

Yogiyo is currently in fierce competition with the country's leading delivery app service Baedal Minjok over domestic delivery market shares. Korea’s delivery service market has seen rapid growth, surging from around 5.3 trillion won in 2018 to 9.7 trillion won in 2019.

Baemin currently holds around a 59.7% market share while Yogiyo accounts for a 30% market share in the delivery app market. Yogiyo believes it can narrow the market share gap via advanced delivery technologies. 

“Yogiyo needs to offer something that will encourage restaurants to register on its platform even though they have to pay a 12 percent commission,” said an IT industry official. “If Yogiyo improves its delivery services via artificial intelligence technology then it could lead to a rise in orders, which will entice stores to join its platform,” the official said.

Meanwhile, some industry watchers say Yogiyo's decision to boost its R&D division is a strategic move to raise its price tag ahead of the sale.

Write to Jun-ho Cha and Min-ki Koo at chacha@hankyung.com

Danbee Lee edited this article.