As Yelp(YELP) - Get Report and Groupon(GRPN) - Get Report face increasing competition in local marketplaces from large rivals such as Facebook(FB) - Get Report and Alphabet's(GOOGL) - Get Report Google, Wedbush Securities analyst Aaron Turner suggests the review site and the online deal marketer should combine.
Each would help the other accomplish its growth plans, Turner explained.
"Groupon is trying to be a part of their users' daily lives, which Yelp already is for millions of users," he said. "Yelp is laser-focused on adding transactions to its platform, which is Groupon's bread and butter."
Turner proposed a Yelp acquisition of Groupon in a recent note, although he said that since the companies are relatively equally valued, either could be the buyer.
"The model works either way," the analyst. The deal partners could cut duplicative sales and administrative costs, as well.
"They can offer promotions, they can offer advertising they can offer enhanced web presences," he said. "That full suite would be very compelling to a local business when they are trying to decide where to place their ad dollars."
After gaining 6 cents, or 1.6%, to close at $3.51 on Tuesday, Groupon's market cap came to about $2.1 billion. Yelp gained 56 cents, or 1.2%, to $30.38, increasing its market value to about $2.3 billion.
Yelp could pay $4.23, or a 30% premium to early July trading levels, value Groupon's equity at nearly $2.5 billion. A post-merger Yelp would have a nearly $4.8 billion market cap following the deal, which is still small compared to Facebook and Google.
Turner suggested that Rich Williams, who became Groupon chief executive in November, would sell at the right price.In April, the company announced $250 million investment from Atairos, a private business run by former Comcast(CMCSA) - Get Report CFO Michael Angelakis, who joined Groupon's board. Comcast said it would explore ways to apply Groupon's local expertise to its network and subscriber base.
Comcast would presumably have greater opportunities to collaborate with a merged Groupon and Yelp, as the local media groups look to stave off Facebook and Google.
Groupon and Yelp declined to comment on the proposed merger.
If the companies have doubts, there is a precedent overseas. Meituan and Dianping, which merged last year, are the Group and Yelp, respectively, of China.
"It's not completely unheard of," Turner said.