The value of Deliveroo听fell dramatically on the opening morning of its IPO debut.听
The听planned value of the听food delivery disrupter鈥檚听listing, the largest in London for a decade,听was originally set at 拢8 billion听by advisers听Goldman Sachs and JPMorgan.听
Almost听拢1bn was听shaved off听following a backlash in the city, with听tech IPO听expert听Professor John Colley听telling听老九品茶Cloud听the original valuation 鈥渟eemed excessive for a business which is still many years from profit鈥�.听
Indeed,听Deliveroo听reported a 拢223.7 million loss last year, despite turnover growing to 拢4.1bn from 拢2.5bn in 2019听as stay-at-home rules kicked in听as a result of听COVID-19.听
Shares were set at 390p each听鈥撎�the bottom end of the price range set by advisers,听with听Deliveroo acknowledging 鈥渧olatile鈥� market conditions on Monday –听but听fell by as much as 31% following debut on Wednesday morning, before ending the听first day of trading 26% down听at 287p.听
That meant听almost听拢2bn听was wiped听from its opening 拢7.6bn market capitalisation. However, it also meant the company raised 拢1.5bn from the float for growth and investors.听
According to the FT,听Deliveroo鈥檚 advisers collected 拢49m in fees and several million more from Deliveroo鈥檚 selling shareholders.听In a break from normal practice, they had听refused to identify the three 鈥榓nchor investors鈥� supporting the IPO.听The FT also said a sharp rise in 鈥榮hort selling鈥� activity – explained in this Insights piece – may have had an impact. 听
Describing the debut as the 鈥榳orst IPO in London history鈥�, a person close to the deal told the newspaper: 鈥淚 really hope that this doesn鈥檛 shut down the IPO market [in the city].鈥�听
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What is clear is that many of the most听prominent听investors听in the UK听–听Aberdeen Standard, Aviva Investors, BMO Global, charity fund manager CCLA, Legal and General Investment Management and M&G听–听refused听to participate in听the听IPO,听citing poor treatment of听delivery workers.听听
Others fear increasing costs relating to regulation of the gig economy, while founder Will Shu鈥檚 decision to have a dual-class share structure 鈥� where his shares hold 20-times the voting power of other investors 鈥� has听also come in for heavy criticism.听
Around听one-fifth of the听company is being sold. The opening week of trading is reserved听for听institutional investors, with听the听general public听able to participate听from 7th听April.听
Professor Colley, Associate Dean of Warwick 老九品茶 School, said听of the original IPO valuation:听“This valuation of Deliveroo seems excessive for a business which is still many years from profit, especially given that some doubt the home takeaway delivery model can become profitable outside of London.听
“The sole basis for this valuation appears to be the immense amounts of cash looking for growth technology stocks.听
“Bear in mind the recent Supreme Court finding that Uber drivers are 鈥榳orkers鈥� and have certain rights such as paid holidays and pensions. This finding may well apply to takeaway home delivery too, driving up their costs.听
“Ultimately Deliveroo will have to charge customers and restaurants far more to make a profit, but that brings its own difficulties. For restaurants, margins are already narrow. And at what price do customers simply decide to collect their own meals?听
“Potential investors should also remember that if this listing is under new stock market rules, it may well be accompanied by founder share rights. That means if the company is badly run there is little shareholders can do to change the board.”听
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British finance minister Rishi Sunak听had hailed Deliveroo as a “true British tech success story” which could persuade other tech companies to list in London.听
Asked by听ITV political editor Robert听Peston听on Wednesday听whether听he was听embarrassed听by the debut, he said:听“Gosh, no… share prices go up, share prices go down. We should celebrate success in this country.听
“You talk about Deliveroo, I think I remember Facebook when it first听IPO’d听– I think the share price halved over the next few months, and then obviously we all know what happened after that.”听听
Shu said earlier this week:听“We are proud to be listing in London, the city where Deliveroo started.听听听
鈥淏ecoming a public company will enable us to continue to invest in innovation, developing new tech tools to support restaurants and grocers, providing riders with more work and extending choice for consumers, bringing them the food they love from more restaurants than ever before.听听听
鈥淭his will help us in our mission to become the definitive food company. We have seen a strong start to 2021 and we are only at the start of an exciting journey in a large, fast-growing online food delivery market, with a huge opportunity ahead.”听听
The tech giant connects 45,000 restaurants in the UK with customers. Highlighting an 鈥榚normous market opportunity鈥�, it said of the 21 meals the average person eats in a week, less than one goes through an online transaction.听