Concerns Over Deliveroo’s Business Model
Deliveroo, the online food delivery company, reached an overall business valuation of £7.6 billion ($10.46 billion) after it set an IPO price of £3.90 ($5.38) per share, which is below what the market analysts expected.
A number of major British fund managers decided not to take part in the IPO due to the dual-class share structure and gig economy business model. A dual-class share structure gives more voting rights to the leadership, with the co-founder and CEO Shu being the sole holder of “class B” stock, and his shares will account for 20 votes per share.
These investors that abandoned the offering include Aberdeen Standard Life, Aviva, Legal & General Investment Management, and M&G.
Shares of the Amazon-backed company plummeted to as low as £2.71, resulting in a plunge of over 30% compared to the IPO price. Deliveroo stock price has recovered slightly, in the meantime, to trade around the £3.00 ($4.14) mark.
The food delivery service company is still able to cancel the offering and void all of the trades until its shares begin unconditional trading on April 7. The company is selling 384,615,384 shares, amounting to roughly £1.5 billion ($2.07 billion).
Out of this amount, £1 billion ($1.38 billion) will go to the company, while £500 million ($689 million) will go to existing shareholders, including Amazon and Will Shu, the CEO of the food delivery business.
JP Morgan and Goldman Sachs were the lead underwriters, including participation from Bank of America Merrill Lynch, Citi, Jeffries, and Numis. Retail investors will not be able to access Deliveroo IPO and trade shares before April 7.
The offered price “isn’t quite as tasty as it was hoping for,” said Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown.
“This isn’t hugely surprising given the substantial background noise surrounding the company. The biggest concern is regulation around worker rights. The flexible employee model of Deliveroo’s riders is a huge pillar of the group’s plans for success,” she said.
Industry experts are concerned that today’s plunge in the food delivery company’s share price may harm the British and UK IPO markets.
“Massive disconnect between the order book and the wider market,” Reuters cited an industry expert.
Deliveroo’s IPO was the biggest one in London since Glencore’s IPO 10 years ago, as well as the biggest tech float on the London Stock Exchange (LSE). The UK Finance Minister Rishi Sunak was looking to lure high-growth tech business to London in a bid to increase its financial clout after Brexit. A weak Deliveroo IPO is a clear blow to those plans.
Shares of the food delivery business Deliveroo plummeted over 30% in the much-anticipated London IPO to wipe £2.28 billion ($3.14 billion) off its business valuation on concerns over the company’s dual-class share structure and gig economy business model.
About the Author
An analyst of global affairs, Adriaan has an MSC from Oxford, with diverse interests in the digital economy, entertainment, and business. He is a specialist trainer in advanced analytics and media.