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The most eagerly awaited tech IPO in London in years, launched by meal-delivery firm Deliveroo, flopped Wednesday when its shares plunged 30% at one point, dealing a blow to the U.K.’s ambitions to pry more multibillion-dollar tech listings away from Wall Street.
Deliveroo prides itself on being a tech company on the basis of its A.I.-powered algorithm that evaluates the most efficient way of distributing orders and a machine-learning platform that helps predict how long it will take to prepare a meal. But it also relies on an army of cyclists and motorbike riders hauling Deliveroo’s blue food boxes around the cities of the 12 national markets in which it operates. Deliveroo’s Rider app informs them what they will earn per delivery.
A recent ruling by the U.K.’s Supreme Court that Uber drivers are workers who are entitled to holiday pay and the minimum wage has raised questions about Deliveroo’s gig economy model.
Those doubts have been weighing on the company even before today.
Deliveroo, whose investors include Amazon, had already priced its shares at the lowest end of the range after several large U.K. fund managers shunned the IPO, voicing concerns over its dual-share structure, and its business model and labor practices, the latter being a big issue with ESG investors.
The share price was set at £3.90, valuing the company at £7.6 billion ($10.5 billion), but it opened 15% lower and fell as low as £2.71, down 30%, before recovering slightly to £2.92, still down 25%, by mid-afternoon. Only institutions can trade in Deliveroo shares for now, with small investors able to buy and sell shares from April 7.
The firm made a pretax loss of £225 million ($310 million) last year on revenues of £1.2 billion ($1.7 billion) despite seeing a sales boost from COVID lockdowns.
The firm was founded by Connecticut-born Will Shu, 41, who was disappointed by the lack of late-night delivery options during a stint working at Morgan Stanley in London. That drove him to set up his own firm.
The U.K. is eager for some of the high-tech pizzazz that has fueled sensational growth in U.S. stocks over the past year. The U.K.’s biggest company index, by contrast, is very heavy on unloved banks, and oil and mining companies. As such, London’s FTSE was one of the worst performing exchanges in the developed world last year.
The U.K. has a thriving tech scene and now has 80 “unicorns”—startups valued at more than $1 billion—more than France and Germany put together, according to a recent report.
But when it’s time to go public, some of the most exciting prospects shun London for the bright lights of New York, attracted by not only the strong investor appetite for tech companies but also the massive size of the U.S. market, which boasts an unparalleled capital market structure. More flexible listing rules and the astronomic rise of blank-check companies or SPACs add to New York’s charms.
Case in point: U.K.-based electric-vehicle startup Arrival set a record last week for the biggest-ever stock market listing by a U.K.-based company. But London-based Arrival achieved the $13.5 billion valuation by merging with a blank-check company and listing on Nasdaq.
Not to be outdone, British online car retailer Cazoo said this week it would list on the New York Stock Exchange through a $7 billion merger with a SPAC.
Flight of the unicorns
Manish Madhvani, managing partner at tech investor GP Bullhound, said the Deliveroo flop would add to the narrative that London isn’t yet the big league for tech IPOs.
“I think it’s really important we do create this ecosystem in London for our great companies to float because so much good work has gone into creating unicorns and billion-dollar tech companies that are now becoming really global household names. But we are doing all this hard work, and the entrepreneurs are growing these amazing businesses, and then when they reach this level, too many of them are still having to float in the U.S.,” he told Sky News.
Chris Beauchamp thinks that might be too harsh. The chief market analyst at trading firm IG said it would be a mistake to read too much into a single IPO “that was arguably quite highly priced.” He noted that Deliveroo was coming to the market at a time when the ground was shifting for gig economy companies. To wit, Germany’s Delivery Hero and Nasdaq-listed DoorDash are both in the red, year to date.
“It’s a Deliveroo-focused issue rather than a much broader issue about tech IPOs,” he told Fortune.
The poor reception for Deliveroo shares is also a setback for the U.K. government, which had staked its prestige on the offer. Deliveroo’s press release announcing its intention to float this month included a quote from U.K. finance minister Rishi Sunak, who said, “Deliveroo has created thousands of jobs and is a true British tech success story. It is great news that the next stage of their growth will be on the public markets in the U.K.”
Britain unveiled proposals for a shake-up of listing rules earlier this month to make London a more attractive venue for offerings of shares in tech companies and for the red-hot market for SPACs.
The changes were partly a response to growing evidence that London’s once-undisputed dominance as Europe’s financial capital was being eroded after it definitively left the European Union’s orbit on Dec. 31. Amsterdam knocked London off its perch as Europe’s biggest share-trading venue in January.
It’s no exaggeration to say a lot was riding on today’s IPO.
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