Deliveroo customers that logged on for the Katsu curry or Five Guys meal deal, but ended up shelling out for shares in the food delivery app, have ended up with a serious case of indigestion.
The company, founded and led by US entrepreneur and former Morgan Stanley analyst Will Shu, finally floated on the London Stock Exchange (LSE) on Wednesday after much hype. It could not have gone much worse. The stock slumped as much as 30 per cent on its debut, knocking £2 billion (€2.4 billion) off its market value.
Deliveroo customers in the UK spent between £250 and £1,000 each on shares – or £50 million in total – but remain locked in until at least April 7th. A total of £1.5 billion was raised in the IPO.
Among the flag wavers was UK chancellor of the exchequer Rishi Sunak, who last month hailed the pending IPO as "true British tech success story" amid hopes that it would lure more fast-growing tech companies to the LSE.
The episode leaves egg on the faces of a host of investment bank, led by JP Morgan and Goldman Sachs, but also including Bank of America, Citigroup, Jefferies and Numis, who clearly failed to price the deal properly.
Investor concerns
But the signs were there that the flotation could be tricky, as a who's who of the fund management industry – including Legal & General, BMO Global Asset Management, Aviva Investors and Aberdeen Standard Investments – said in recent weeks that they would be shunning the deal over concerns about Deliveroo's treatment of workers in these ESG (environmental, social and governance) times.
A Bureau of Investigative Journalism survey of thousands of invoices found that a third of Deliveroo’s riders earned less than minimum wage, with the lowest-paid bringing in just £2 an hour.
While Deliveroo disputes this, claiming that pay averages £13 an hour at the business times, a portfolio manager at BMO said last week labour issues represented a “ticking bomb on the side” for the company, which contributed to making it “uninvestable”. That didn’t stop the investment banks pricing the IPO to deliver an initial value of £7.6 billion, which itself was 15 per cent off to upper end of the price range they originally pitched to Shu.
Oh, to have been on one of the follow-up calls on this failed delivery.
