The all-stock transaction means that customers of Postmates and Uber Eats will have an expanded choice of restaurants and other merchants to choose from. It also enables the two companies to streamline the delivery process by combining dispatch networks.
The merger better positions Uber Eats to compete with DoorDash, which is the most widely used food delivery platform in the U.S., according to analytics firm Second Measure. Still, Postmates will remain a standalone app, Uber said in a press release.
"Uber and Postmates have long shared a belief that platforms like ours can power much more than just food delivery – they can be a hugely important part of local commerce and communities, all the more important during crises like COVID-19," said Uber CEO Dara Khosrowshahi in a statement.
Uber is valued at over $30 billion. Postmates' last private venture valuation was $2.4 billion in September, according to Forbes.
The move comes after Uber's business took major hits due to the coronavirus. The pandemic caused millions of people to avoid taking rides, but it also led to a surge in food deliveries.
Bookings on Uber Eats are up more than 100% over last year, Uber said.
Postmates is fourth in the food delivery market, behind Doordash, Uber Eats and GrubHub, says Wedbush analyst Daniel Ives.
"This is an aggressive move by Uber to take out a competitor on the Uber Eats front and further consolidate its market position, especially as the COVID-19 pandemic continues to shift more of a focus to deliveries vs. ride-sharing in the near-term," wrote Ives in a note Monday.
It wouldn't be the first time the ride-hailing company sought to acquire a firm that specializes in deliveries.