DoorDash is buying its competitor Caviar from Square for $410 million as the red-hot delivery space continues to heat up

A Caviar employee rides their bike down Market St. in San Francisco, California, on Saturday, January 26, 2018.

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A Caviar employee rides their bike down Market St. in San Francisco, California, on Saturday, January 26, 2018.
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Katie Canales/Business Insider

DoorDash announced Thursday that it plans to buy competing delivery company Caviar from Square in a $410 million cash-and-stock deal.

Caviar, which operates in about thirty cities throughout the United States, was originally acquired by the payments company, helmed by Twitter founder Jack Dorsey, in 2014.

DoorDash said it was interested in buying the competitor in order to acquire its “leading technology and exceptional team.” Gokul Rajaram, head of the Caviar division at Square, will join DoorDash as well, the company said, adding that the deal is expected to close this year.

“We have long-admired Caviar, which has a coveted brand, an exceptional portfolio of premium restaurants and leading technology,” DoorDash CEO Tony Xu said in a press release.

The acquisition further enhances the breadth of our merchant selection, enabling us to offer customers even more choice when they order through DoorDash. We look forward to welcoming the Caviar team to DoorDash and expanding our partnership with Square in the future.”

Shares of Square sank as much as 8% in after-hours trading Thursday

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Shares of Square sank as much as 8% in after-hours trading Thursday
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Markets Insider

Shares of Square sank as much as 8% in after-hours trading following the Caviar deal’s announcement, which coincided with a quarterly earnings report that was mostly in-line with Wall Street’s expectations. The dip implies that some investors thought Caviar was worth more than the selling price.

The acquisition will give DoorDash a big increase in market share in some key cities.

According to data from Second Measure, DoorDash could now control 63% of the market in San Francisco, up from 47% previously. In Chicago, that fraction is expected to increase to 34% from 28%, and in Boston, it could hit 31% from 26%.

“We like the acquisition rationale as it gives DoorDash increased market share in three key markets, but would have much rather seen Grubhub be the acquirer (we remain Buy rated on GRUB),” Robert Mollins, an analyst at Gordon Haskett Research Advisors, said in a note to clients. ” The acquisition will most likely further strengthen DoorDash’s partnership with Square.”

DoorDash came under fire in July for a controversial tipping policy, which it eventually changed, after backlash from customers and workers. Under the old system, some customer tips were counted towards a delivery partner’s guaranteed base pay. Tips are now always counted on top of a minimum base rate, Xu announced in late July.

Read more: We asked Uber, Lyft, Instacart and other gig-economy startups how much of your tips go directly to their workers

DoorDash’s acquisition is the latest in a string of delivery startup mergers in the red-hot industry. Earlier this week, Delivery.com announced it would acquired Mr. Delivery, a smaller competitor based in Austin, Texas. In July, two European delivery powerhouses, Takeaway and Just Eat, merged in a $10 billion deal. Amazon, meanwhile, has backed another European competitor, London-based Deliveroo.

“We expect to see further consolidation in the third-party delivery space globally and expect to see an increased level of interest in companies that can complement third-party delivery offerings such as loyalty, white label apps and labor scheduling capabilities (i.e. Toast acquiring StratEx on July 24, 2019),” Mollins said.

Carmen Reinicke contributed to this report.