Deliveroo's £1 billion IPO bid is facing an uncertain future. The company's plans to go public on the London Stock Exchange have been put on hold due to a lack of investor support.
Deliveroo's valuation is estimated to be around £7.4 billion, which is a significant increase from its valuation of £3.9 billion in 2020. This suggests that investors are cautious about the company's growth prospects.
Investors are concerned about the sustainability of Deliveroo's business model, which relies heavily on commission fees from restaurants. This model has been criticized for being unsustainable in the long term.
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Share Structure and Pricing
Deliveroo's share structure is unique, with the company aiming to raise £1 billion from the sale of its shares, and £50 million of those shares will be available to existing customers on an invite-only basis.
Existing customers will take precedence over others, but anyone who isn't a customer can register their interest via the Deliveroo site or app.
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Deliveroo is handling this IPO differently from other companies, with a focus on institutional investors outside of the US, but private investors will still be able to purchase Class A shares.
The company's value is estimated to be over £5 billion, with a projected value that's likely to be influenced by its successful growth in 2020, where its gross transaction value grew by 64.3%.
IPO Challenges and Concerns
Deliveroo's IPO has been hit by concerns over its treatment of drivers, governance, and valuation. The company's flexible employee model has raised red flags, and some investors have shunned the IPO due to worries about the gig economy.
Investors are also concerned about Deliveroo's business model, which could be affected by a UK court ruling that reclassified Uber's drivers as workers. This could result in higher costs for Deliveroo, potentially to the tune of £112 million to cover potential legal costs.
Several other tech and e-commerce IPOs have struggled after listing, including Moonpig, Lendinvest, Made.com, Trustpilot, and Dr Martens. Their share prices have been under pressure due to excessive valuations and insecurity among investors.
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Gig Work Concerns
Deliveroo's IPO has been hit by concerns over its treatment of drivers, governance, and valuation.
Investors, including Legal and General, Aberdeen Standard, Aviva, and M&A, have collectively shunned the company's debut due to worries about the gig economy.
Regulation around worker rights is a major concern, with some investors questioning Deliveroo's flexible employee model.
The company's riders are going on strike next Wednesday to protest poor working conditions and low pay, which is unlikely to ease investor worries.
Deliveroo claims its drivers earn £13 an hour on average during the busiest times, but this hasn't cooled investor concerns over the business model.
Uber's reclassification of its U.K. drivers as workers entitled to a minimum wage and other benefits has raised concerns that Deliveroo may suffer the same fate.
Deliveroo has set aside £112 million to cover potential legal costs relating to the employment status of its riders.
Struggling with High Valuations
Deliveroo's IPO was a disaster, with shares falling as much as 30% on its first day of trading, wiping £2.3 billion off the company's value.
The company set the IPO price at £3.90 per share, the bottom of the range it was targeting, despite saying it had "very significant demand from institutions across the globe".
Deliveroo's business model and future prospects in a competitive environment raised concerns among investors, who are worried that the pandemic boom in food delivery will fade when restaurants reopen.
Several large institutional investors, including Aberdeen and BMO Global Asset Management, didn't participate in Deliveroo's IPO due to concerns about competition and regulation, and the way the company treats its delivery riders.
The stock market debut of Deliveroo was the worst London debut for a major IPO, according to data provider Dealogic, and it's not the only one to struggle after listing.
Other tech/e-commerce IPOs, such as Moonpig, Lendinvest, Made.com, Trustpilot, and Dr Martens, have also seen their share price under pressure after their high-profile flotations.
London has been working hard to position itself as a fintech hub, but it's still struggling to attract fast-growing companies to launch an IPO, despite raising £16.8bn in equity capital for newly listing businesses in 2021.
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IPO Collapse and Impact
Deliveroo's IPO collapse was a major blow to the company's value, wiping off £2.3 billion ($3.2 billion) in a single day.
The stock price plummeted as much as 30% below the listing price, which was set at £3.90 ($5.36) per share.
This is a concerning trend, especially since Deliveroo had set the IPO price at the bottom of the range it was targeting.
Despite saying there was "very significant demand from institutions across the globe", the company's stock market debut was marred by questions about its business model and future prospects.
Deliveroo has yet to turn a profit, and some investors are worried that the pandemic boom in food delivery will fade when restaurants reopen.
The company's already thin margins would struggle to climb if it's forced to offer more traditional employee benefits.
Several large institutional investors, including Aberdeen and BMO Global Asset Management, had concerns about competition and regulation, and the way the company treats its delivery riders.
These investors chose not to participate in Deliveroo's IPO, which could be a warning sign for the company's future prospects.
Deliveroo's decision to pay riders bonuses of up to £10,000 ($13,800) following its IPO may not be enough to alleviate concerns about workers' rights.
About 70,000 retail investors who took part in the offer could be left facing steep losses, with shares worth £50 million ($68.9 million) at stake.
IPO Advisors and Services
When advising on a high-profile IPO like Deliveroo's, it's essential to have a team of experienced professionals.
Latham & Watkins is advising Deliveroo Holding plc on its initial public offering on the London Stock Exchange.
They are leading the way with a team of skilled lawyers, including London corporate partners Chris Horton, Josh Kiernan, Ryan Benedict, Anna Ngo, and Douglas Abernethy.
The team at Latham & Watkins is being supported by capital markets lawyer Irene Pistotnik, and associates Koushik Prasad, Fred Gardner, and Marco Bonasso.
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They're covering all aspects of the IPO, from corporate to capital markets.
Deliveroo has opted for a dual class share structure with two classes of ordinary shares – Class A Shares and Class B Shares.
The Class B Shares would be held solely by Deliveroo's Founder and Chief Executive Officer.
The price range for the IPO has been set at £3.90 to £4.60 per share, implying an estimated market capitalization at admission of between £7.6 billion and £8.8 billion.
This is a significant milestone for Deliveroo, and Latham & Watkins is proud to be a part of it.
The primary offer is expected to raise gross proceeds of approximately £1 billion, in addition to a secondary selldown by certain existing shareholders.
This will help Deliveroo continue to grow and expand its services.
Latham & Watkins has a dedicated team providing advice on various aspects of the IPO, including UK employment matters, data protection matters, and US tax matters.
They're working closely with other experts to ensure a smooth and successful IPO process.
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Frequently Asked Questions
What was Deliveroo's IPO price?
Deliveroo's IPO price was 390p per share. This price may be seen as inflated due to market conditions at the time, specifically the COVID-19 pandemic.
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