Lyft’s ef­forts to find buyer thwarted, sources say

Honolulu Star-Advertiser - - MONEY - By David Gelles and Mike Isaac

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, the sec­ond-big­gest ride-hail­ing com­pany in the United States be­hind Uber, 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, Ap­ple, Google, Ama­zon, Uber and Didi Chux­ing, 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, said the peo­ple, and in the end Lyft did not find a buyer.

Lyft is not in dan­ger of clos­ing down and has a cash cush­ion of $1.4 bil­lion, some of these peo­ple added, so the com­pany will con­tinue as an in­de­pen­dent en­tity.

Still, the talks un­der­line how dif­fi­cult it has be­come to op­er­ate in the ride-hail­ing mar­ket, where peo­ple can book rides from driv­ers through a smart­phone app. While ride-hail­ing com­pa­nies do not own their own fleets of cars and in­stead rely on driv­ers who have their own ve­hi­cles, the busi­ness is highly cap­i­tal-in­ten­sive. Ven­ture cap­i­tal­ists and other in­vestors have poured bil­lions of dol­lars into the com­pa­nies.

Ten­sions have es­ca­lated in the in­dus­try in re­cent months as some ride-hail­ing com­pa­nies have worked to fig­ure out what to do with their most ex­pen­sive op­er­a­tions. This month Uber, which has raised far more money than Lyft, agreed to sell its Chi­nese sub­sidiary to Didi, the big­gest ride-hail­ing com­pany in China. The deal freed Uber from a cash-suck­ing bat­tle for dom­i­nance in the China mar­ket.

But the move also dis­rupted a global al­liance that Lyft had ear­lier struck with Didi and oth­ers to fight Uber. Lyft has not stated whether it will con­tinue work­ing with Didi, but the dis­so­lu­tion of a part­ner­ship could stymie Lyft’s growth prospects.

Rep­re­sen­ta­tives from Lyft, Google, Ama­zon, Ap­ple, GM, Didi and Uber de­clined to com­ment on talks. The In­for­ma­tion ear­lier re­ported on talks be­tween GM and Lyft.

Lyft, a 4-year-old com­pany co-founded by Lo­gan Green and John Zim­mer, sprang out of an early long-dis­tance car­pool­ing pro­gram, then called Zim­ride, in 2007. The goal, the two co-founders have said, was to cre­ate a new kind of so­cial ride-shar­ing ser­vice, at­tempt to de­crease the num­ber of cars on the road, im­prove con­ges­tion, re­duce hu­man­ity’s en­vi­ron­men­tal foot­print and cre­ate more ef­fi­ciency in trans­porta­tion.

That idea has turned into a global move­ment as com­pa­nies world­wide — like Grab in South­east Asia, Ola in In­dia, Bla Bla Car in Eu­rope and Uber — look to up­end the global trans­porta­tion in­fra­struc­ture.

The ef­fort to sell Lyft was aided by bankers at Qat­a­lyst Part­ners, the bou­tique in­vest­ment bank founded by vet­eran Sil­i­con Val­ley banker Frank Qu­at­trone, said the

peo­ple with knowl­edge of the talks. Qat­a­lyst de­clined to com­ment.

Lyft failed to find a buyer partly be­cause of cost, the peo­ple said. Lyft was val­ued at $5.5 bil­lion af­ter an in­vest­ment round by GM and oth­ers in Jan­uary, mak­ing it one of the more pre-em­i­nent uni­corn com­pa­nies in Sil­i­con Val­ley. 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 like Lyft and Uber typ­i­cally take 20 to 25 per­cent of the cost of each ride. With Lyft driv­ers ex­pected to pick up an es­ti­mated $2 bil­lion or so in fares this year, that meant Lyft’s an­nual rev­enue would be about $400 mil­lion, ac­cord­ing to a per­son fa­mil­iar with the com­pany’s fi­nan­cials.

That $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. And in some cases, Lyft pro­vides driv­ers with ad­di­tional cash in­cen­tives sim­ply to get out on the road, adding to its costs.

The eco­nomic re­al­i­ties of the in­dus­try have set in for a num­ber of ride-hail­ing play­ers. Side­car, an app that com­peted with Uber and Lyft, shut down in De­cem­ber, cit­ing a “sig­nif­i­cant cap­i­tal dis­ad­van­tage” com­pared with oth­ers in the mar­ket.

“One of the chal­lenges for these com­pa­nies is to fig­ure out how to grow and sus­tain that la­tent de­mand for these busi­nesses but also to even­tu­ally be­come prof­itable,” said Su­san Sha­heen, co-di­rec­tor of the Trans­porta­tion Sus­tain­abil­ity Re­search Cen­ter at the Univer­sity of Cal­i­for­nia, Berke­ley. “Part of the chal­lenge in evolv­ing those ser­vices is just bal­anc­ing out those fac­tors, and that’s not an easy task.”

Lyft is not prof­itable, said a per­son briefed on the com­pany’s fi­nances. Yet it has a $1.4 bil­lion cash hoard, the per­son added, and the com­pany thinks that will shield it as it works to­ward achiev­ing prof­itabil­ity.

Sha­heen said an ac­qui­si­tion might still make sense for ride-hail­ing com­pa­nies that need more re­sources and a big­ger size to com­pete.

AS­SO­CI­ATED PRESS / JAN. 14

Ride-hail­ing com­pany Lyft has in re­cent months held talks or made ap­proaches to sell it­self to com­pa­nies in­clud­ing Gen­eral Mo­tors, Ap­ple, Google, Ama­zon, Uber and Didi Chux­ing, sources say. A driver waits to pick up pas­sen­gers at an Uber and Lyft pickup area at the Bel­la­gio ho­tel and casino in Las Ve­gas.

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