A Deliveroo cyclist in London, UK.
Dinendra Haria | SOPA pictures | LightRocket | Getty Images
LONDON – Shares in UK grocery delivery start-up Deliveroo fell on its IPO Wednesday as the company faced pressure from top investors and unions over workers’ rights.
At Deliveroo, backed by Amazon, stocks on early deals were down around 30% from issue price before some losses were reduced.
The company valued its shares at £ 3.90 ($ 5.36) on Tuesday, an expected market value of £ 7.59 billion, which was at the lower end of its IPO target range.
However, according to Reuters data, the company’s share price fell to around £ 2.73 when the shares began conditional trading on the London Stock Exchange on Wednesday morning. This has hurt the company’s valuation by around £ 2 billion. According to reports, the company may still cancel its IPO and void all trades it has made until unconditional trading begins on April 7th.
Deliveroo is selling 384,615,384 shares for an offer size of approximately £ 1.5 billion. Of that, £ 1 billion will go to the company itself and £ 500 million to existing shareholders, with Amazon and Will Shu, the company’s CEO and co-founder, benefiting the most.
The company’s shares were traded under the ticker “ROO” at 8:00 am London time on Wednesday. JPMorgan and Goldman Sachs topped the listing, while Bank of America’s Merrill Lynch, Citi, Jefferies and Numis were also part of the syndicate. Retail investors will not be able to trade Deliveroo shares until the conditional deals end on April 7th.
Sophie Lund-Yates, a stock analyst at Hargreaves Lansdown, said Deliveroo’s price “isn’t quite as tasty as he’d hoped it would be”.
“This is not very surprising given the significant background noise that surrounds the company,” she said.
“The biggest problem is the regulation of workers’ rights. Deliveroo’s flexible employee model of drivers is an important pillar of the group’s success plans.”
Deliveroo’s IPO offering is the largest in the UK since e-commerce company The Hut Group raised £ 1.88 billion in a listing last September. In terms of market cap, this is the largest IPO in London since Glencore’s initial public offering almost a decade ago. It is also the UK’s largest tech list of all time by value, beating that of The Hut Group and Worldpay, which debuted in 2015 prior to delisting.
“Next phase of our journey”
“I am very proud that Deliveroo is going public in London – our home,” Shu said in a statement. “As we reach this milestone, I’d like to thank everyone who has helped bring Deliveroo into today’s business – especially our restaurants and grocers, drivers and customers.”
He added, “In this next phase of our journey as a public company, we will continue to invest in the innovations that will help restaurants and grocers grow their businesses, give customers more choice than ever before, and give drivers more work. Our goal is to build the definitive online food business and we look forward to the future very much. “
This is an important vote of confidence in London as the UK capital seeks to attract high-growth tech companies and increase its financial clout after Brexit. UK Treasury Secretary Rishi Sunak described Deliveroo as a “real UK tech success story” when the company announced plans to be listed in London.
However, the IPO was hit by concerns about Deliveroo’s treatment of drivers, corporate governance and valuation. Legal and General, Aberdeen Standard, Aviva and M&A, which together have around £ 2.5 trillion in assets under management, avoided Deliveroo’s debut.
Each of the investment firms raised concerns about the gig economy Deliveroo is operating in. The company’s turquoise uniformed couriers have become ubiquitous in London and other cities during the coronavirus pandemic as people turned to food delivery apps for their groceries.
Some of Deliveroo’s drivers will go on strike next Wednesday as soon as the IPO is open to retailers to protest what they see as poor working conditions and low wages. Deliveroo says it gives drivers the flexibility to work when they want, making an average of £ 13 an hour during the busiest times.
However, this has not allayed investor concerns about Deliveroo’s business model. Earlier this month, Uber classified all UK drivers as workers who were eligible for minimum wages and other benefits after the country’s Supreme Court ruled that a group of drivers should be treated as workers.
This is expected to result in higher costs for Uber – potentially as high as $ 500 million, according to Bank of America. Investors fear Deliveroo could suffer the same fate, and the company has allocated £ 112million to cover potential legal costs related to its drivers’ employment status.
Meanwhile, institutional shareholders have also raised concerns about Deliveroo’s governance. The company is listed in London with a dual class share structure that gives Shu over 50% of the voting rights.
Test for London
Deliveroo’s IPO will be a test of London’s tolerance of high-growth tech companies that are spending big bucks on large-scale growth before prioritizing profits.
It’s a mantra that gained popularity on Amazon in Silicon Valley that was initially unprofitable for a few years. Deliveroo remains heavily loss-making after posting a loss of £ 223.7m in 2020.
“Deliveroo has yet to make a profit, which makes it very difficult to value on a traditional basis,” said Lund-Yates.
“But a market cap of £ 7.6 billion means the company is worth 6.4 times last year’s sales, which, despite the lower price, is well above 4.8 times rival Just Eat. That means Deliveroo is under pressure to deliver the goods or the stock price. ” will be in the line of fire. “
The company has managed to stay in the black in recent months thanks to increased demand for grocery deliveries.
However, UK investors are concerned about Deliveroo’s high valuation of £ 7.6 billion, especially at a time when vaccines are being rolled out and countries are planning to reopen their economies. DoorDash, a US rival of Deliveroo that went public last year, has a significantly larger market cap of around $ 42 billion.
Deliveroo warned it could have failed early last year when an investment by Amazon, its largest outside shareholder, was put on hold as part of a competitive review. Amazon’s stake in Deliveroo was later approved by regulators.
“The lack of blockbuster listings in London and the pent-up demand from investors during the pandemic have created encouraging market momentum for Deliveroo,” said Nalin Patel, EMEA private equity analyst at PitchBook.
“However, the short-term volatility of public stocks and employee rights issues have impacted IPO pricing and investor participation,” added Patel.
Even so, several tech firms are flocking to London to list their stocks, as Trustpilot and Moonpig recently did. A number of other companies, including Wise and Darktrace, are expected to debut later this year.
Martin Mignot, partner at Index Ventures, one of Deliveroo’s earliest supporters, said London has the opportunity to become the go-to place for European tech listings.
“Deliveroo is a big win for the capital, but a lot more needs to be done,” he said. “Compared to US public listings, European founders are still facing more traditional public market investors who are not used to supporting high-growth tech companies.”