The Amazon-backed company begins trading in London today

A Deliveroo cyclist in London, UK

Dinendra Haria | SOPA pictures | LightRocket | Getty Images

LONDON – Shares in UK grocery delivery start-up Deliveroo fell on its stock market debut on Wednesday amid pressure from top investors and unions over workers’ rights.

Deliveroo, which is backed by Amazon, saw its shares drop around 30% compared to the issue price on early deals.

The company valued its shares at £ 3.90 ($ 5.36) on Tuesday, a market value of £ 7.59 billion, which is at the lower end of its IPO target range.

However, the company’s share price fell to around £ 2.73 when the shares began conditional trading.

Deliveroo is selling 384,615,384 shares for an offer size of approximately £ 1.5 billion. Of that, £ 1 billion will go to the company itself and £ 500 million to existing shareholders, with Amazon and Will Shu, the company’s CEO and co-founder, benefiting the most.

The company’s shares were traded under the ticker “ROO” at 8:00 am London time on Wednesday. However, retail investors will not be able to trade Deliveroo shares until the conditional deals end on April 7th.

Deliveroo’s IPO offering is the largest in the UK since e-commerce company The Hut Group raised £ 1.88 billion in a listing last September. In terms of market cap, this is the largest IPO in London since Glencore’s initial public offering almost a decade ago. It is also the UK’s largest tech list of all time by value, beating The Hut Group and Worldpay, which debuted in 2015 prior to delisting.

“Next phase of our journey”

“I am very proud that Deliveroo is going public in London – our home,” Shu said in a statement. “As we reach this milestone, I’d like to thank everyone who has helped bring Deliveroo into today’s business – especially our restaurants and grocers, drivers and customers.”

He added, “In this next phase of our journey as a public company, we will continue to invest in the innovations that will help restaurants and grocers grow their businesses, give customers more choice than ever before, and give drivers more work. Our goal is to build the definitive online food business and we look forward to the future very much. “

This is an important vote of confidence in London as the UK capital seeks to attract high-growth tech companies and increase its financial clout after Brexit. UK Treasury Secretary Rishi Sunak described Deliveroo as a “real UK tech success story” when the company announced plans to be listed in London.

However, the IPO was hit by concerns about Deliveroo’s treatment of drivers, corporate governance and valuation. Legal and General, Aberdeen Standard, Aviva and M&A, which together have around £ 2.5 trillion in assets under management, avoided Deliveroo’s debut.

Each of the investment firms cited concerns about the gig economy in which Deliveroo operates. The company’s turquoise uniformed couriers have become ubiquitous in London and other cities during the coronavirus pandemic as people turned to food delivery apps for their groceries.

Some of Deliveroo’s drivers are on strike next Wednesday as soon as the IPO is open to retailers to protest what they see as poor working conditions and low wages. Deliveroo says it gives drivers the flexibility to work when they want, making an average of £ 13 an hour during the busiest times.

However, this has not allayed investor concerns about Deliveroo’s business model. Earlier this month, Uber classified all UK drivers as workers who were eligible for minimum wages and other benefits after the country’s Supreme Court ruled that a group of drivers should be treated as workers.

This is expected to result in higher costs for Uber – potentially as high as $ 500 million, according to Bank of America. Investors fear Deliveroo could suffer the same fate, and the company has allocated £ 112million to cover potential legal costs related to its drivers’ employment status.

Meanwhile, institutional shareholders have also raised concerns about Deliveroo’s governance. The company is listed in London with a dual class structure that gives Shu over 50% of the voting rights.

Test for London

Deliveroo’s IPO will be a test of London’s tolerance of high-growth tech companies that are spending big bucks on large-scale growth before prioritizing profits.

It’s a mantra that gained popularity on Amazon in Silicon Valley that was initially unprofitable for a few years. Deliveroo remains heavily loss making after reporting a loss of £ 223.7m in 2020. In recent months, the company has been in the black thanks to increased demand for grocery deliveries.

However, UK investors are concerned about Deliveroo’s high valuation of £ 7.6 billion, especially at a time when vaccines are being rolled out and countries are planning to reopen their economies. DoorDash, a US rival of Deliveroo that went public last year, has a significantly larger market cap of around $ 42 billion.

Deliveroo warned it could have failed early last year when an investment by Amazon, its largest outside shareholder, was put on hold as part of a competitive review. Amazon’s stake in Deliveroo was later approved by regulators.

“The lack of blockbuster listings in London and the pent-up demand from investors during the pandemic have created encouraging market momentum for Deliveroo,” said Nalin Patel, EMEA private equity analyst at PitchBook.

“However, the short-term volatility of public stocks and labor rights issues have impacted IPO pricing and investor participation,” added Patel.

Even so, several tech firms are flocking to London to list their stocks, as Trustpilot and Moonpig recently did. A number of other companies, including Wise and Darktrace, are expected to debut later this year.

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