What's going on?

Ride-hailing and food delivery giant Uber has placed an order to buy US rival Postmates for $2.6 billion (tweet this). That�s a lot of sides.

What does this mean?

Postmates has been delivering everything from groceries to takeout across the US since the company began in 2011, and it could be exactly the kind of friend Uber needs right now. The ride-hailing firm�s already said it plans to withdraw from markets in which it�ll struggle to turn a profit any time soon. Having lost out on buying Grubhub to Just Eat Takeaway.com, it might now see Postmates as a way to set up its American Uber Eats business for eventual profitability.


But Postmates is playing the field: it�s in a �dual-track� process, meaning it�s simultaneously considering an initial public offering instead of the takeover. If the company reckons it can get a better deal from public investors than it can from Uber, the ride-hailing food delivery giant might be left a Billy No-Postmates yet again�

Why should I care?

For markets: Unhealthy competition.

�In-market consolidation� � where competing companies join forces � should help improve the combined firm�s bottom line. That�s especially true in the food delivery industry, where aggressive marketing makes it tough to earn money. But if Postmates and Uber Eats don�t need to compete against each other, the newly combined company should be able to cut its marketing spend and grow its revenue faster than its costs. That�d ultimately help Uber deliver on its promise to become profitable before much longer.

The bigger picture: Shake it out.

When the earliest online food delivery firms launched around two decades ago, they lost more money than they earned at first. But over time � thanks to rising internet and smartphone use � those companies saw dramatic growth, which attracted more competition. Now, as rivals strike deals to stay afloat, the industry will likely settle into a slower growth yet higher profit phase � no bad thing for profit-hungry investors.