It is not an easy thing to be an independent ride-hailing company these days.
For one, it takes billions of dollars and hundreds of employees to spread to new cities, to market the service and to recruit drivers. Legislators and local laws are often not in your favor, and competitors with deep pockets from all over the world are waiting to cheer if you happen to fail.
Lyft Inc, the second-biggest ride-hailing company in the US behind Uber Technologies Inc, is grappling with those forces — but has found that its options are limited.
The company, which is based in San Francisco, has in recent months held talks or made approaches to sell itself to companies including General Motors Co (GM), Apple Inc, Alphabet Inc’s Google, Amazon.com Inc, Uber and Didi Chuxing (滴滴出行), according to a dozen people who spoke on the condition of anonymity because the discussions were private.
One person said it was Lyft who was approached by interested parties.
Lyft’s discussions were most serious with GM, which is one of the ride-hailing company’s largest investors.
Still, GM never made a written offer to buy Lyft, the people said, adding that in the end Lyft did not find a buyer.
Lyft is not in danger of closing down and has a cash cushion of US$1.4 billion, some of these people added, so the company is to continue as an independent entity.
The effort to sell Lyft was aided by bankers at Qatalyst Partners, the boutique investment bank founded by the veteran Silicon Valley banker Frank Quattrone, the people with knowledge of the talks said.
Lyft failed to find a buyer partly because of cost, the people said.
Lyft was valued at US$5.5 billion after an investment round by GM and others in January. Any sale would most likely have to fetch a premium from Lyft’s last valuation to be desirable to the company and its investors.
Lyft also struggled to find a buyer because of the challenging economics of the ride-hailing business.
Companies such as Lyft and Uber typically take 20 to 25 percent of the cost of each ride. With Lyft drivers expected to pick up an estimated US$2 billion in fares this year, that meant Lyft’s annual revenue would be about US$400 million, according to a person familiar with the company’s finances.
That US$400 million shrinks after marketing costs are factored in. To win loyalty from drivers who can also work for Uber, Lyft also sometimes lets drivers keep that 20 to 25 percent of some rides, so the company effectively earns no revenue in those situations. In some cases, Lyft also provides drivers with additional cash incentives simply to get out on the road, adding to its costs.
University of California, Berkeley Transportation Sustainability Research Center co-director Susan Shaheen said an acquisition might still make sense for ride-hailing companies that needed more resources.
“There isn’t a single company that has all of this expertise — software, manufacturing, ride-sharing — under one roof,” she said. “That’s where acquisition comes in.”
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