Meal delivery company Deliveroo’s stock market debut was one of the worst opening-day performances by a large company IPO on record, leaving investors hoping for a rebound or facing heavy losses.
Some of the City’s biggest institutional investors had shunned the initial public offering (IPO) over concerns about Deliveroo’s working practices and the dual-class share structure which gives founder Will Shu greater control.
The calamity was also a blow to the UK’s hopes of attracting more tech-focused companies to float in the City.
Having sold shares at 390p, Deliveroo plunged when trading began on Wednesday morning, and ended the day at 287.45p.
This cut its value to around £5.6bn from £7.6bn, which was already the bottom of its target range, as Deliveroo cut back its ambitions.
‘British tech success’
UK Chancellor Rishi Sunak recently hailed the company as a “British tech success” but more than £2bn was wiped off its value as trading began, just over a week after it was estimated at up to £8.8bn.
Deliveroo’s float is London’s biggest IPO since commodity giant Glencore went public in 2011 – and the biggest-ever tech float in the city.
Its dismal reception could be seen as blow to Chancellor Rishi Sunak’s ambition to attract more technology companies to list in the UK.
Deliveroo, which has around 45,000 restaurants on its platform in the UK and more than 100,000 worldwide, has benefited over the past year from an increased appetite for takeaways with dining out banned or restricted.
Orders over January and February were 121% higher than the same period a year ago, while for 2020 the total of £4.1bn was 64% higher than a year earlier.
In an internal memo, chief financial officer Adam Miller moved to calm any jitters among staff. “We have a simple message today: Don’t underestimate Deliveroo,” he wrote, before listing a string of mitigating factors for the dismal debut.
Volatile markets, he said, had not helped. He referred to other European and US IPOs in the past week that had lost ground. A hedge fund had also gone haywire last week, he added, causing some companies to trade down 30% in a single day. And Deliveroo’s “peers in the food delivery sector are down 10-35% in just the last six weeks”.
Deliveroo, he added, was a young company, “in great shape” and now also had “well-respected public market investors.”
Ethical issues becoming more important
Laura Petrone, Senior Thematic Research Analyst at GlobalData, a leading data and analytics company, said: “Investors are no longer just looking at the books when deciding where to put their money. Environmental, social and governance (ESG) issues are now of primary concern. The recent UK Supreme Court ruling on the status of Uber drivers was a watershed moment, marking the start of a new era in the gig economy. In this new phase, investors will be increasingly concerned over workers’ basic rights and of potential regulatory risks as governments around the world turn to regulate this business model.
“The fact that three of Britain’s biggest asset managers – Aviva, Legal & General, and Standard Life Aberdeen – haven’t backed Deliveroo’s IPO suggests that investors are concerned about its stance on the classification of its riders as self-employed contractors. Impressive revenues alone are no longer enough for investors. They also demand sound ethics and good governance.
“It needs to be seen whether this new, regulated gig economy model will be sustainable in the long run as the potential extra costs could make gig economy companies less attractive to investors.”