Company / Analytics

Analytics, 01 April 2021

What to know about Deliveroo IPO in London

Amazon-backed British food delivery start-up Deliveroo debuted on the stock market in London on Wednesday, but shares plunged more than 30 percent below IPO prices, as the company faced pressure from top investors and trade unions over workers’ rights.

What is Deliveroo?

Deliveroo is an Amazon-backed online food delivery start-up based in Britain. The company was founded by William Shu in 2013 in London and operates in over two hundred locations across the United Kingdom, the Netherlands, France, Belgium, Ireland, Spain, Italy, Australia, New Zealand, Singapore, Hong Kong, the United Arab Emirates, and Kuwait.

When will Deliveroo begin trading?

Deliveroo debuted on the London Stock exchange under the ticker “ROO”, with initial share price of £3.90 ($5.36), giving it an expected market value of £7.59 billion, which was at the bottom end of its IPO target range.

But the company’s share price dropped down to around £2.73, according to Reuters data, as shares began conditional trading Wednesday morning on the London Stock Exchange. The share drop wiped approximately £2 billion off the company’s valuation. Deliveroo may reportedly still cancel the IPO and void any trades made until unconditional trading starts on April 7.

Retail investors won’t be able to trade Deliveroo shares until conditional dealings end on April 7.

How many shares is Deliveroo selling?

Deliveroo is selling 384,615,384 shares, equating to an offer size of approximately £1.5 billion. Of that, £1 billion will go to the company itself and £500 million will go to existing shareholders, with Amazon and Will Shu, the company’s CEO and co-founder, among those set to gain the most.

The listing is led by JP Morgan and Goldman Sachs, but Bank of America Merrill Lynch, Citi, Jefferies, and Numis were also part of the syndicate.

Why is Deliveroo listing important?

Deliveroo’s IPO offer is the largest in the U.K. since e-commerce firm The Hut Group raised £1.88 billion in a listing last September.

In terms of market cap, it is the biggest IPO to take place in London since Glencore went public nearly a decade ago. It’s also Britain’s largest-ever tech listing by value, surpassing that of The Hut Group and Worldpay which debuted in 2015 before delisting.

Why did Deliveroo shares drop?

Deliveroo’s treatment of its drivers, the company’s governance, and valuation have all raised concern. Legal and General, Aberdeen Standard, Aviva, and M&A — which collectively have about £2.5 trillion in assets under management — have all shunned Deliveroo’s debut.

Each of the investment firms cited concerns about the gig economy in which Deliveroo operates. 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 riders are going on strike next Wednesday once its IPO opens up to retail traders, to protest what they see as poor working conditions and low pay. For its part, Deliveroo says its drivers are given the flexibility to work when they want and earn £13 an hour on average during the busiest times. Still, the flexible employee model of Deliveroo’s riders is a huge pillar of the group’s plans for success.

Meanwhile, institutional shareholders have also raised concerns with Deliveroo’s governance. The company is listing in London with a dual-class share structure, which gives its CEO Shu over 50% of the voting rights.

Besides, Deliveroo remains heavily lossmaking, having reported a loss of £223.7 million in 2020. But a market cap of £7.6 billion means the company’s worth 6.4 times last year’s revenue, which in some way above rival Just Eat’s 4.8 times, despite the lower price. That means there’s pressure for Deliveroo to deliver the goods, or its share price will be in the firing line.

Deliveroo warned it could have failed early last year as an investment from Amazon, its largest outside shareholder, was put on hold amid a competition review. Amazon’s stake in Deliveroo was later approved by regulators.

What does the future look like for Deliveroo?

Deliveroo plans to invest in the innovations that help restaurants and grocers to grow their businesses, to bring customers more choice than ever before, and to provide riders with more work, CEO Shu said at the time of the listing in London. The company also plans to build the definitive online food company and is excited about the future ahead.

Deliveroo’s listing is a major vote of confidence in London, as the U.K. capital looks to attract high-growth tech companies and boost its financial clout after Brexit. British Finance Minister Rishi Sunak described Deliveroo as a “true British tech success story” when the company announced plans to list in London. To succeed, especially in the gig economy which forms part of Deliveroo’s main business model, the company must address worker concerns.

Earlier this month, Uber reclassified all its U.K. drivers as workers entitled to a minimum wage and other benefits after the country’s top court ruled a group of drivers should be treated as workers.

This is expected to result in higher costs for Uber — potentially to the tune of $500 million, according to Bank of America. Investors are worried that Deliveroo may suffer the same fate, and the company has set aside £112 million to cover potential legal costs relating to the employment status of its riders.

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