Picture:.REUTERS/CHARLES PLATIAU
Picture:.REUTERS/CHARLES PLATIAU

London — Deliveroo Holdings collapsed in its London public debut as investors abandoned the food-delivery start-up criticised for its labour practices and corporate governance, just as the broader technology sector falls out of market favour.

The stock plunged as much as 31% in its first minutes of trading to trigger circuit breakers — the worst performance in decades for a big UK listing.

Deliveroo’s £1.5bn IPO was meant to be a triumph for the City in its post-Brexit push to lure tech firms away from New York. Instead, the first-day performance looks like a disaster.

As appetite sours for stocks that flourished during the lockdown, institutional investors have rebuffed the bellwether for the gig economy in droves. Asset managers including Legal & General Investment Management said they wouldn’t buy the stock because Deliveroo’s treatment of couriers doesn’t align with responsible investing practices.

Investors have also balked at the dual-class structure that allows CEO Will Shu to retain control of the business for three years. Hundreds of riders are planning a protest next week to lobby for better pay and conditions.

Deliveroo traded at 288.90p in London, down 26%. The shares priced at 390p, the bottom end of the initial range. Among the five biggest deals in London in 2021, Deliveroo is the only company that didn’t receive the highest targeted valuation, data compiled by Bloomberg News show. Goldman Sachs, one of the lead banks on the offering, didn’t immediately respond to a request for comment, while the other, JPMorgan Chase, declined to comment.

“It’s not a great endorsement of setting IPOs in the UK,” said Neil Campling, analyst at Mirabaud Securities. “You have the combination of poor timing, as many ‘at home’ stocks have been under pressure in recent weeks, and the well-publicised deal ‘strike’ by a number of A-list institutional investors.”

Investors are also souring on the fast-growing companies that benefited during the pandemic. Doordash has slumped 23% this month, and European rivals Just Eat Takeaway and Delivery Hero have also fallen this year.

“The window for tech-driven IPOs just couldn’t be worse,” said Oliver Scharping, a portfolio manager Bantleon. “Deliveroo was trying to keep the window open with brute force.”

The company and its banks also sought a premium valuation for the stock. At the offering price, Deliveroo fetched 6.4 times 2020’s revenue, vs a multiple of 5.8 for Just Eat. At the middle of the original price range, the stock would have been valued at 19 times gross profit vs less than 7 times for its Dutch rival, said Alberto Tocchio, a portfolio manager at Kairos Partners.

Among the losers in the IPO will be retail investors, who were given the option to buy shares via Deliveroo’s app. Retail investors will only be able to trade the stock from April 7.

IPO details

Deliveroo and investors sold 384.6-million shares at the offer price, equal to a 21% stake. The company raised £1bn, while shareholders including Amazon  and Shu, the founder, sold the remaining £500m of stock.

The prospectus indicates Amazon was looking to sell 23.3-million shares in the offering. At the IPO price, this means it received proceeds of £90.9m, with its remaining stake valued at about £818m, according to Bloomberg News calculations.

Deliveroo is the largest IPO in the UK since e-commerce operator THG’s £1.88bn  listing in September.

Like THG, Deliveroo listed with weighted voting rights on the LSE’s standard segment and therefore can’t be included in indexes such as the FTSE 100, despite its size. While the stock will lose out on fund flows from passive strategies that track these benchmarks, the same situation hasn’t prevented THG’s shares from surging 26%.

Bloomberg

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