Is Lyft Looking for a Buyer -- and Will It Be General Motors?

GM president Dan Amman (center) with Lyft co-founders Logan Green (left) and John Zimmer (right). GM invested $500 million in Lyft in January. Image source: General Motors.

Is ride-hailing start-up Lyft looking for a buyer? Could that buyer turn out to be General Motors (GM -0.47%)?

The Wall Street Journal is reporting that Lyft has retained Qatalyst Partners, a "boutique" investment bank known for helping technology companies find buyers -- and the bankers are talking to automakers, including GM. 

What's going on, here?

Lyft may be hungry for capital to keep up with giant Uber

A little background: Lyft, like much larger rival Uber Technologies, needs a lot of cash. Both companies are spending millions to expand their services, offering bonuses to new drivers and subsidizing rides in new territories until they become profitable. 

So far, Lyft has raised about $2 billion, including a $500 million investment from GM. Lyft's most recent round of fundraising reportedly valued the company at $5.5 billion. 

In comparison, Uber has raised about $15 billion and was recently valued at an eye-popping $68 billion. Uber is spending a fortune in an effort to get established in China, while Lyft has yet to make a major move outside of the U.S., but still: Given Uber's big war chest, it's not surprising Lyft's management team might be seeking more capital as the company tries to keep pace. 

I suspect that's all that is going on, here. Lyft hasn't exactly had trouble raising money so far. There's no obvious reason to think it has concluded that a sale is its best option. 

However, whether it's looking for new investments or a buyer, it's clear why GM is high on Lyft's list.

GM already has a substantial relationship with Lyft

GM's relationship with Lyft goes well beyond a passive investment. For starters, GM is setting up a program to rent vehicles to Lyft drivers at an affordable weekly rate. For GM, which has struggled versus import-brand rivals in areas around American cities, the deal with Lyft is a way to expose young urban folks to its (much-improved) products. 

The idea is that those folks will get a favorable impression of GM that will linger when they get a little older, move out to the suburbs, and think about buying cars. (The same thinking is behind GM's new car-sharing unit, Maven, aZipcar rival.)

There's more. GM is also looking to Lyft to provide its first real-world test of self-driving technology. Lyft executives have said it will test a self-driving taxi service in a (so far unspecified) U.S. city within a year -- and those self-driving taxis will be electric Chevrolet Bolts. GM has been openly testing self-driving Bolts on San Francisco streets recently, presumably gearing up for the larger test with Lyft. 

A self-driving Chevrolet Bolt EV in San Francisco. Image source: Cruise Automation/General Motors.

While some in the media have characterized the Bolt as a Tesla Motors rival, the truth is that the little electric Chevy was designed with a ride-hailing and car-sharing service in mind from the start, with a slew of features intended to make it easier to drop off and pick up passengers in an urban environment. 

Bottom line: It's possible GM's business case for the Bolt might depend (at least in part) on a partnership with a company like Lyft. 

If Lyft is for sale, might GM be a buyer?

That's less clear. On one hand, GM could certainly afford to spend the $5 billion or so it would presumably take to acquire Lyft outright. 

But on the other hand, why would GM want to buy Lyft outright? It already has a sizable stake, a seat on the board, and presumably a buy-in from Lyft's management to work on the initiatives that are part of CEO Mary Barra's future-tech strategy. 

Having complete control of Lyft would ensure GM has a captive market for the Bolt, but it may already have enough access to Lyft to meet its business goals without the investment and commitment that would come with outright ownership. 

More to the point, given Lyft's capital needs, a $5 billion or so investment to buy it could be just the beginning. GM has plenty of capital and a strong credit rating should it decide to raise more, but would it want so many of its eggs in one basket? 

The upshot: Don't hold your breath waiting for GM to buy out Lyft

Long story short: I think it's very unlikely Lyft is actually putting itself up for sale. I think it's far more likely that it's looking for additional investors, that Qatalyst Partners made some calls to automakers to gauge interest, and that somebody in that chain talked to The Wall Street Journal.

It's possible GM will be willing to increase its investment in Lyft. It's also possible GM would try to block an investment from a rival automaker. But I think it's unlikely GM would be interested in buying Lyft outright -- and I think it's unlikely that Lyft is actually for sale.