Amazon-backed company begins operations in London today

LONDON – Shares of UK food delivery start-up Deliveroo fell when it debuted on Wednesday, as the company comes under pressure from major investors and unions over workers’ rights.

Deliveroo, which is backed by Amazon, saw its shares drop by around 30% in early trades from the issue price.

The company priced its shares at £ 3.90 ($ 5.36) on Tuesday, giving it a market value of £ 7.59bn, which sits at the low end of its introductory target range in stock Exchange.

But the company’s share price had fallen to around £ 2.73 as the shares started trading under conditions.

Deliveroo is selling 384,615,384 shares, which equates to an offering size of around £ 1.5 billion. Of that amount, £ 1 billion will go to the company itself and £ 500 million to existing shareholders, Amazon and Will Shu, CEO and co-founder of the company, among those expected to earn the most.

The company’s shares began trading under the symbol “ROO” on Wednesday at 8 a.m. London time. However, retail investors will not be able to trade Deliveroo shares until the conditional trades close on April 7.

Deliveroo’s IPO offer 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 capitalization, this is the largest IPO in London since Glencore IPO almost ten years ago. It’s also the biggest tech list ever made in Britain by value, surpassing that of The Hut Group and Worldpay which debuted in 2015 before dropping off the list.

“I am very proud that Deliveroo is going public in London – our home,” Shu said in a statement. “As we reach this milestone, I want to thank everyone who has helped make Deliveroo the company it is today – especially our restaurants and grocers, our riders and our customers.”

He added, “In this next phase of our journey as a public company, we will continue to invest in innovations that help restaurants and grocers grow their businesses, provide customers with more choice than ever before, and provide more work for motorcyclists. Our goal is to create the definitive online food company and we are very excited about the future to come. “

It’s a major vote of confidence in London, as the UK capital seeks to attract high-growth tech companies and strengthen its financial influence after Brexit. UK Finance Minister Rishi Sunak described Deliveroo as a “true British technological achievement” when the company announced plans to list in London.

However, the IPO was hit by concerns about Deliveroo’s treatment of its drivers, governance and the valuation of the company. Legal and general, Aberdeen Standard, Aviva and M&A – which collectively have around £ 2.5 trillion in assets under management – all avoided the early days of Deliveroo.

Each of the investment firms has raised concerns about the odd-job economy in which Deliveroo operates. The company’s couriers in turquoise uniforms have become ubiquitous in London and other cities during the coronavirus pandemic, as people have turned to food delivery apps for their groceries.

Some of Deliveroo’s runners go on strike next Wednesday after its IPO opens to retail traders, protesting what they see as poor working conditions and low wages. For its part, Deliveroo says its drivers have the flexibility to work when they want to and earn £ 13 an hour on average during peak times.

This did not, however, allay investor concerns about Deliveroo’s business model. Earlier this month, Uber reclassified all of its UK drivers as workers entitled to minimum wages and other benefits after the country’s highest court ruled that a group of drivers should be treated as workers.

This is expected to result in higher costs for Uber – potentially in the order of $ 500 million, according to Bank of America. Investors fear that Deliveroo will suffer the same fate and the company has set aside £ 112million to cover possible legal costs related to the employment status of its riders.

Meanwhile, institutional shareholders have also expressed concerns about the governance of Deliveroo. The company is listed in London with a two-class share structure, which gives Shu more than 50% of the voting rights.

Deliveroo’s IPO will be a test of London’s tolerance for high-growth tech companies that spend a lot to grow on a large scale before prioritizing profits.

It’s a mantra that gained popularity in Silicon Valley with Amazon, which initially wasn’t profitable for several years. Deliveroo remains heavily in deficit, having reported a loss of £ 223.7million in 2020. But the company has managed to enter the dark in recent months thanks to increased demand for food delivery.

But UK investors are concerned about Deliveroo’s high £ 7.6 billion value, especially at a time when vaccines are being rolled out and countries are considering a reopening of their economies. DoorDash, a U.S. rival to Deliveroo that went public last year, has a significantly higher market capitalization of around $ 42 billion.

Deliveroo has warned it could have failed early last year as an investment from Amazon, its largest outside shareholder, was put on hold amid a competition review. Amazon’s stake in Deliveroo was subsequently approved by regulators.

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

“However, the short-term volatility of public stocks and issues surrounding workers’ rights have had an impact on IPO prices and investor participation,” Patel added.

Nonetheless, several tech companies are flocking to London to list their stocks, with Trustpilot and Moonpig both having done recently. A number of other companies, including Wise and Darktrace, are expected to debut later this year.