This analysis was first published in SvD Näringsliv, in Swedish, on September 19th, 2022. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.
When Instabox and Budbee merge, a new delivery giant is born. Behind the merger sits a bigger trend: venture capital owners think it is time for the companies to get big — so they can become profitable.
This summer the American magazine The Atlantic ran a piece on how the subsidies for the millennial lifestyle were over. After years of cheap taxi rides, food deliveries and parcel couriers, reality had finally caught up. It was time to pay what it actually cost to deliver all these services — and it turned out to be pretty expensive.
That is the same reality now catching up with both Swedish startups and consumers. For many years, historically low interest rates led to over-enthusiasm among investors around growth and high risk. Startups could — and were encouraged to — burn money to win market share. The idea was that new habits would be established with consumers, economies of scale would emerge and then the market would normalise (read: price hikes and less competition).
This is the light in which to view the big deal where delivery companies Budbee and Instabox are merging. Combined valuation: SEK 18 billion. Delivering parcels is profitable. Or rather — delivering parcels is going to be profitable. The companies together lost around SEK 190 million last year on combined revenue of just over SEK 1.3 billion.
Increasing scale is a central part of the deal. Both companies work in freight and deliveries and reasonably have many similarities in their organisations. To SvD, the company’s new CEO Fredrik Hamilton plays down cost synergies and says it is too early to say. It is an understandable comment, but it would be close to unreasonable to assume the merger will not lead to savings.
The elephant in the room is called PostNord.
But cost cuts alone are not what makes scale important. A larger company has an easier time negotiating with business partners and can expand faster internationally. The aforementioned economies of scale mainly appear at very large scale, and it is cheaper to reach that together than as separate companies. In some categories, the business is impossible to run profitably without being a giant.
An additional advantage is that the two companies no longer have to compete with each other and can instead focus on the other players in the market. The elephant in the room is called PostNord — by far the biggest on the Swedish market. Another is competitor Airmee, which has Amazon as a major customer.
The deal between Instabox and Budbee is conditional on approval from the Swedish Competition Authority. A safe bet is that the deal goes through. You only have to look at the American market to see where the big threats are coming from — as early as 2020, Amazon’s own shipping arm became bigger than FedEx in terms of volume. Having large domestic players that can take on global giants could, if anything, be seen as positive for competition.
Venture capital has been paying your tab for many years.
As a consumer you may sometimes wonder how certain services can even add up. Some things have been unreasonably cheap for a very long time. You don’t have to look further than the pavement and all the e-scooters to see a clear example.
The answer is that venture capital has been paying your tab for many years. They have done it so the companies they invest in become indispensable in your life. To become the market leader that survives and thrives. But not all e-scooters or delivery solutions will survive. Companies will withdraw from markets, go bankrupt or merge as risk-willing capital dries up. This is only the beginning.
The companies that do survive, however, will dictate terms and prices. And it will get more expensive. Instabox and Budbee are the first on the Swedish market to merge and make a combined push. But they will not be the last.
