This Monday the Wall Street Journal reported that Lyft has hired Qatalyst Partners, the Frank Quattrone-founded investment bank known for its role in technology M&A. This has sparked speculation that the ride-hailing company is gauging interest for an acquisition.
Of course, the ride-hailing company could simply be seeking to sell a stake or just raise further funding. But if we entertain the notion that Lyft is indeed looking for a buyer, it’s possible to put together a shortlist of potential suitors for the company.
Using the CB Insights database, we can identify companies whose recent acquisitions, investments, or partnerships might signal a strategic alignment and hence interest in Lyft.
According to CB Insights data, Lyft has raised $1.85B in total funding to date. It most recently raised $500M from GM in January at a $5.5B valuation, a large sum that is nonetheless dwarfed by the decacorn valuations of Uber and Didi Chuxing.
Bloomberg reported Tuesday that an anonymous investor deemed $5.5B an “acceptable” price for Lyft, which is spending heavily to subsidize growth as it battles the deep war chest of Uber. As Bloomberg mentions, any potential buyer would have to contend with Lyft’s rapid cash burn and uncertain growth prospects. If a buyer were to emerge for Lyft, here’s the shortlist, roughly ordered from more likely to less likely.
General Motors
The WSJ piece cited “large automakers” as possible buyers for Lyft; of these GM presents the most obvious strategic fit. As mentioned, GM has corporate minority ownership, and their engagement has already borne fruit with their “express” rental programs for Lyft drivers and plans for self-driving Bolt taxi trials in 2017.
Under CEO Mary Barra, GM has been vocally bullish embracing ongoing technology trends in the automotive space. It has backed up its rhetoric with significant tech M&A, including autonomous driving with Cruise and of course ride-hailing, scooping up Sidecar‘s assets in January.
However, any tech deal approaching Lyft’s $5.5B valuation would be unprecedented among auto OEMs, though GM technically has the financial means with over $14B in cash and equivalents as of its latest quarterly report (to say nothing of debt or equity financing). It’s also unclear what GM would immediately gain from an outright acquisition, given its existing stake, board seat, and deepening partnership already in place with Lyft.
Didi Chuxing
Another player with strategic ties to Lyft is Didi Chuxing, the Chinese ride-hailing giant that is also locked in a fierce market share and fundraising battle with Uber.
Together with Singapore’s Grab and India’s Olacabs, Didi Chuxing and Lyft formed an informal global anti-Uber alliance in December 2015. Reminiscent of an airline alliance, the coalition comes with codesharing-esque agreements for cross-booking rides across apps and regions.
We’ve dug into how Didi Chuxing has already invested directly in Lyft and its other anti-Uber partners. Having raised $9.6B in total funding (including debt), it’s also the only ride-hailing company with the potential wherewithal for a deal besides Uber itself. However, an acquisition would still entail a huge fiscal commitment and departure from Didi’s publicly stated plans for its dry powder. It’d be a major strategic shift for Didi to move from fighting a single-front war with Uber in China to a costly multi-front battle (as Uber is currently doing).
Ford and other major automakers
Besides GM, other automakers with robust balance sheets are candidates, given the opportunities and threats they see in ride-hailing. However, the “big 3” players besides GM have already placed significant ride-hailing bets: VW with Gett ($300M corporate minority stake) and Toyota with Uber. Daimler and BMW have also invested in smaller rivals.
Of the remainder, Ford notably lacks strong partnerships in the ride-hailing arena and has nearly $16B in cash and equivalents on hand as of Q1’16. It is loosely linked to Lyft through the VC firm co-founded by executive chairman Bill Ford. But his Fontinalis Partners is independent of Ford itself, and GM would be determined to protect its stake from other automakers—especially its most bitter rival.
On first glance, Tesla-Lyft might make a trendy pairing of tech brands, but the smaller automaker is resource-constrained as it prepares to scale for Model 3 production and a proposed acquisition of SolarCity.
US tech corporates: Alphabet/Google or Apple
With famously large cash hoards and favorable debt terms, both US tech giants could easily finance a Lyft acquisition, though the strategic fit here becomes more questionable.
Google has a highly visible autonomous car program, but its path to commercialization is unclear, with only a 100-car Fiat-Chrysler trial planned to date. Google itself does have a tenous link to Lyft, via a Waze-Lyft integration. Separately, its Google Ventures arm has participated in several funding rounds to Uber, including its $1.2B Series D in 2014.
Apple is also widely reported to be running its own car project, and has set a precedent as a ride-hailing investor with its $1B investment into Lyft partner Didi Chuxing. On the company’s last earnings call, CEO Tim Cook hinted that large acquisitions might help catalyze the company’s stalling growth.
Both companies are years from deploying vehicles at scale, and an acquisition would saddle them with Lyft’s deficits in the near-term. Though to be fair, Lyft’s annual loss cap of $600M would represent less than 3% of either company’s fiscal year 2015 earnings (before interest, depreciation, taxes, amortization).
Asian tech corporates: Alibaba, Baidu, Tencent, etc.
Asian technology powerhouses like Alibaba, Baidu, and Tencent also deserve a mention. They are highly acquisitive, and we’ve highlighted Alibaba and Tencent in particular for their previous investments into both Didi Chuxing and Lyft. But again, the rationale for an full-on purchase of Lyft is even weaker here than with their US counterparts, since Alibaba and Tencent have only begun exploring opportunities in ride-hailing and autonomous vehicles.
Baidu is formally partnered with BMW in a self-driving car project, but has not been as active in the US investments or acquisitions as Tencent and Alibaba. In fact, none of the three have been particularly active in acquisitions of US-based tech companies.
Uber
Fresh from a $3.5B capital infusion from Saudi Arabia’s public investment fund, in theory Uber could move to dramatically reduce its domestic competition and promotional spend overnight with an acquisition. However, any such deal would likely face questioning from regulators.
This also would do little to further its reach internationally, where Lyft has no presence and Uber is investing heavily to expand (more than $1B annually in China alone).
Hertz and rental car majors
Hertz has partnered with Lyft to offer its drivers discounted rentals, and ride-hailing companies are certainly on the strategic radar of rental car providers. But even as one of the largest rental car enterprises, Hertz’s total market cap of under $5B makes an outright acquisition unlikely, as it’d be a bet-the-farm type of deal which Wall Street would probably not look kindly upon. Moreover, a recent agreement has Hertz entering a similar rental deal with Uber, indicating that its Lyft engagement was opportunistic as opposed to a deeper partnership.
Image credit: Andrew Brackin // Flickr
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