Food deliveries group Deliveroo yesterday formally confirmed its intention to launch an IPO that will see it list on the London Stock Exchange (LSE) at a valuation tipped to reach £7 billion. The float will target the raise of £1 billion in fresh capital through the issue of new shares as well as giving “certain existing shareholders” an opportunity to cash out some of their holdings.
No further details were provided on which early-stage investors will sell off some, or how much, of their stakes. The formal confirmation of the intention to IPO included a statement that the final share price, expected to value the company at around £7 billion, will be decided after the book-building process has established the level of demand from institutional investors. An IPO prospectus is anticipated sometime next week.
Goldman Sachs and JP Morgan are running the offer with Numis, Jefferies and Merrill Lynch as joint bookrunners. There will also be an opportunity for retail investors to access the IPO. An agreement with PrimaryBid, a company that pools retail investors as a block to reduce the administrative burden on share issuers, will allow UK Deliveroo customers with a live account to apply for up to £1000 of shares per person. The total retail investor allocation is to be capped at £50 million worth of shares.
Founded in 2013 by former Wall Street analyst William Shu and his friend Greg Orlowski, Deliveroo now works with 100,000 riders delivering orders from over 115,000 restaurant and takeaway partners across 12 countries.
Having decided not to raise capital in 2019, Deliveroo almost went bust last year when markets froze at the height of the coronavirus sell-off in February and March. Disaster was averted when Amazon stepped forward to invest $500 million at a valuation of $4 billion. The Amazon investment was approved by the UK’s competition watchdog in August last year after the company said failure to do so would lead to its collapse. Amazon currently holds a minority 15.84% holding in Deliveroo.
Another $180 million in funds were raised in January this year. This time Deliveroo, boosted by a surge in demand for food deliveries during lockdown periods, was valued at $7 billion. An IPO valuation of £7 billion or higher would see even recent investors net significant gains. Especially Amazon, who invested at roughly half that value just 7 months ago.
The IPO will also bring a windfall for the company’s founders and “family and friends” of chief executive Shu, who helped him raise £115,000 in seed capital before the company had delivered a meal. Other early investors include former Punch Taverns chief executive Giles Thorley and Graham Turner who ran Café Rouge and Bella Italia owner Tragus (now The Big Table).
The company’s earliest investors who still hold shares can expect returns of up to 600 times their original investment. Deliveroo is also proposing a cash bonus worth around £16 million to be shared among the company’s longest serving riders.
Mr Shu still holds a 6.16% stake in the company as well as almost 280,000 restricted stock units, some of which vest with the IPO. His secured 6.16% stake is worth around £430 million at the targeted £7 billion valuation.
The IPO also plans to take advantage of new LSE listing rules recently proposed by a government-backed review designed to make London a more attractive listing destination for high growth tech and biotech start-ups. That will see Deliveroo adopt a dual share structure that will last for 3 years and give Mr Shu’s shares 20 times the votes of those of other shareholders. That means he retains effective control of the company until 2024.
The listing is expected to take place either at the tale-end of this month or in early April. The £1 billion in fresh cash raised will be invested in “innovation and growth”. Delivery-only ‘dark kitchens’ will be one area of investment, as will expanding the company’s digital capabilities and a push into groceries delivery.
Deliveroo has to-date put growth ahead of profit, with underlying losses of £224 reported in 2020 despite a surge in revenues.
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