The Week: Why didn’t Deliveroo deliver?

Deliveroo’s IPO fell flat in early trading: it may be a temporary blip, but with growing investor attention on ESG issues and a shift in market mood to more economically-sensitive areas, it may face longer-term problems.

  • Deliveroo shares dropped 30% in early trading.
  • A number of high profile fund groups publicly said they weren’t going to back the float.
  • There were concerns on the company’s treatment of staff and its governance structures.

Admittedly, it’s a little early to call the success or otherwise of the Deliveroo IPO. However, the initial signs weren’t great. The shares dropped 30% in early trading and a number of high profile fund groups publicly said they weren’t going to back the float. This reflects some key trends in the UK market at the moment.

The first is the growing importance of the ‘S’ in ESG. Deliveroo has been criticised for its treatment of staff, with its reliance on gig economy workers. A recent landmark case has seen Uber drivers reclassified as employees rather than self-employed contractors and this may, in turn, affect Deliveroo’s model. It also had a controversial voting structure, which leaves co-founder and chief executive Will Shu with a £500m stake and 57% of the voting rights. For a number of fund managers this left them with insufficient leverage over the management of the company.

Deliveroo may also have been affected by a different attitude among UK investors. Similar companies in the US have been afforded higher valuations and haven’t met with the same controversies. It had been seen as a test-case for the City and whether ambitious technology companies could attract investment. As such, its early weakness could highlight a problem for the long-term diversity of the UK market. If high growth technologies companies can’t get the price they want in the UK, they may choose to list elsewhere.

That said, even companies willing to back this type of business elsewhere have chosen not to participate. The Deliveroo IPO didn’t getting the backing of the growth team at Baillie Gifford for example, which already has large stakes in similar platforms, such as Meituan, Delivery Hero and Grubhub. The group’s view was that the company was too focused on slow-growing markets – such as the UK, and London in particular. In other words, there were company-specific issues at work, as well as general conservatism among UK investors.

The final problem may be that investors are finally tiring of technology. The IPO coincides with a significant change in market mood that has seen high growth technology businesses fall out of fashion and more economically cyclical areas come to the fore. Like a luke-warm pizza, Deliveroo’s IPO may have come just a little too late to be enjoyable.