Deliveroo’s market slice not so tasty
Deliveroo collapsed in its London public debut as investors abandoned the fooddelivery start-up criticised for its labour practices and corporate governance, just as the broader technology sector falls out of market favour.
The stock plunged as much as 31% in its first minutes of trading to trigger circuit breakers — the worst performance in decades for a big UK listing.
Deliveroo’s £1.5bn (about R30bn) initial public offering (IPO) was meant to be a triumph for the City’s post-Brexit push to lure tech firms away from New York. Instead, the first-day performance looks like a disaster.
As appetite sours for stocks that flourished during the lockdown, institutional investors have rebuffed the bellwether for the gig economy in droves.
Asset managers including Legal & General Investment Management said they wouldn’t buy the stock because Deliveroo’s treatment of couriers doesn’t align with responsible investing practices.
Hundreds of riders are planning a protest next week to lobby for better pay and conditions. They are classed as “self-employed”, removing any legal obligation to offer worker benefits or the minimum wage. Some report making as little as £2 an hour.
Investors have also balked at the dualclass structure that allows CEO Will Shu to retain control of the business, which offers an online and app-based food-ordering service, for three years.
Among the five biggest deals in London this year, Deliveroo is the only company that didn’t receive the highest targeted valuation, data compiled by Bloomberg News show.
“It’s not a great endorsement of setting IPOs in the UK,” said Neil Campling, analyst at Mirabaud Securities.
“You have the combination of poor timing, as many ‘at home’ stocks have been under pressure in recent weeks, and the wellpublicised deal ‘strike’ by a number of A-list institutional investors.”
Investors are souring on the fast-growing companies that benefited during the pandemic. Doordash has slumped 23% this month, and European rivals Just Eat Takeaway.com and Delivery Hero have also fallen this year.
“The window for tech-driven IPOs just couldn’t be worse,” said Oliver Scharping, a portfolio manager at Bantleon. “Deliveroo was trying to keep the window open with brute force.”
Among the losers in the IPO will be retail investors, who were given the option to buy shares via Deliveroo’s app. Retail investors will only be able to trade the stock from Wednesday.
Deliveroo and investors sold 384.6-million shares at the offer price, equal to a 21% stake. The company raised £1bn, while shareholders including Amazon.com and Shu, who founded the company in 2013, sold the remaining £500m of stock.
The prospectus indicates Amazon was looking to sell 23.3-million shares in the offering. At the IPO price, this means it received proceeds of £90.9m, with its remaining stake valued at about £818m, according to Bloomberg News calculations.
Deliveroo is the largest IPO in the UK since e-commerce operator THG’s £1.88bn listing in September.
Like THG, Deliveroo listed with weighted voting rights on the London Stock Exchange’s standard segment and therefore can’t be included in indices such as the FTSE 100, despite its size. While the stock will lose out on fund flows from passive strategies that track these benchmarks, the same situation hasn’t prevented THG’s shares from surging 26%.