Uber Buys deCarta… and Why Big Valuations Matter

Caught a note that one of our favorites, Uber (both to write about and as a customer), purchased deCarta– a local, data-mapping company.  Terms of the deal weren’t disclosed, but given deCarta itself raised some $55m, we can assume it wasn’t an “acquirehire”.

Why is this interesting?

Exhibit 1

First, it highlights the power that comes from lofty valuations.  Chances are pretty good that the deal went down as a tax efficient stock swap.  So from a cash perspective, Uber would have been able to acquire a core asset for little in the way of liquid assets.

We get approached somewhat frequently by companies in the process of a merger – funded via stock swap.  These deals often fall apart.  Why?  For the majority of privately held companies, why would you want to exchange your asset for a stake in an equally illiquid asset?  You wouldn’t.  Better to sell to a cash buyer.

Contrast that with Uber.  You are exchanging your shares for a company that 1) is well funded 2) is on a massive upward growth curve 3) and as such, you have gained more upside in your newly acquired shares.

Exhibit 2

Beyond the funding mechanism, consider the competitive advantage in this deal.  Currently Uber is highly reliant on Google (and a few other mapping data providers) for location data.  This is a company that is basically 100% tied to location data.

As the same time, there have been rumblings for some time that Google and their self-driving car initiate aim to make inroads into what is essentially Uber’s core market.  Ruh oh, Elroy.

By buying their own data provider, the company begins to lessen their dependence on a potential competitor.

Nice move, Uber.