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Deliveroo for Amazon as regulator greenlights minority investment

Image credit: Reuters

The Competition and Markets Authority (CMA) has given approval to Amazon’s minority investment in UK-based online food delivery start-up Deliveroo.

In May 2019, Deliveroo announced a $575m funding round led by Amazon, which would boost Deliveroo’s value to approximately $1.5bn and make Amazon a minority shareholder in the start-up with a stake of 16 per cent.

Amazon had previously attempted to enter the UK online food delivery market with its Amazon Restaurants service (which subsequently exited the UK market last year).

The deal was quickly paused by a CMA enforcement order, with the regulator stating that it had “reasonable grounds” to suspect that Amazon and Deliveroo could merge in future. Later in the year, the CMA launched a formal 'Phase 2' investigation into potential anti-competitive implications of the investment. The investigation would consider if the investment could harm competition, for instance, by discouraging Amazon from re-entering the online food delivery market.

Now, the CMA has greenlit Amazon’s minority investment, upholding provisional findings that the deal – as it stands – should be approved. The CMA had been concerned that Deliveroo was a “failing firm” which could collapse under the pressure of the coronavirus pandemic without cash continuing to flow in from investors; the regulator judged that this would be worse for competition than allowing the investment to proceed. As restaurants and food delivery were permitted to begin operating again, the CMA switched its focus back to the implications of the deal on competition, concluding that the investment is “not expected to damage competition in either restaurant delivery or online convenience grocery delivery”.

Despite its approval, the CMA warned that it may put a stop to any further investment by Amazon in Deliveroo.

“When looking at any merger, the CMA’s role is to assess whether consumers will lose out from a substantial lessening of competition,” said CMA inquiry chair Stuart McIntosh. “We have not found this to be the case given the scale of Amazon’s current investment, but if it were to increase its shareholding in Deliveroo, that could trigger a further investigation by the CMA.”

A Deliveroo spokesperson said that the start-up was “delighted” by the verdict: “This is fantastic news for UK customers and restaurants and for the British economy. British-born Deliveroo will use the investment to increase choice and value for customers, support for restaurants and will be able to offer more riders the flexible work they value as the company expands.”

Although Deliveroo is a popular service in the UK and has expanded across Europe, the Middle East, East Asia and Australasia, it has not yet turned a profit and makes a loss on every delivery.

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