Despite taking the decision to price its IPO at the bottom end of the targeted range specifically in the hope of avoiding the first day drop to hit other recent tech IPOs, the Deliveroo share price plunged 30% today as the food delivery service made its market debut in London. Shares priced at 390p during the IPO opened at 271p in conditional trading, knocking £2.3 billion off Deliveroo’s £7.6 billion valuation.
A modest rally since, which sees the shares priced at 294.25p as the end of the trading day approaches will have done little to comfort the Deliveroo customers given the chance to buy 50 million shares to a value of £1000 each. Retail investors, often disappointed at being locked out of big IPOs, were given access to Deliveroo’s via PrimaryBid.
The company pools retail investors so the company leading an IPO or share placement doesn’t face the logistics headache of dealing with large numbers of small retail investors. It has been reported the PrimaryBid offer attracted 70,000 retail applicants, implying they bought £714 worth of shares each. Many are quite possibly now regretting not having been locked out of the IPO.
Source: Hargreaves Lansdown
There will be those who say the share price slump today shouldn’t come as any great surprise after an initial price range valuing Deliveroo at up to £8.8 billion was subsequently reduced to £7.6 billion. A phalanx of high profile institutional investors from the UK publicly stated they would not be participating in the IPO even at the lower valuation.
Concerns were listed as the dual share structure that gives CEO Will Shu’s shares 20 times the voting power of other shares for three year and effective control over the board for the period. And the threat to the legal status of Deliveroo riders as independent contractors paid per delivery. There are ongoing challenges to that in the UK and Europe, whose target is riders being covered by employee rights including a minimum wage, sick and holiday pay.
Mr Shu sold £26 million worth of his own shares through the IPO but retains 115.2 million, whose value has dropped from £450 million to around £345 million today. Despite the disappointing first day of trading, the company has also raised £1 billion in fresh cash to fund further growth. If the 38.5 million additional shares made available under an over-allotment option are taken up, that will boost Deliveroo’s coffers by a further £150 million. Earlier investors also sold £500 million worth of shares, banking tasty profits.
The disappointing market debut today is being blamed by Deliveroo and its IPO advisors on global market volatility. One banker working on the deal, which was run by Goldman Sachs and JP Morgan, with Merrill Lynch, Numis, and Jefferies joint bookrunners urged caution, stating:
“If the stock doesn’t end up trading in a sensible place over the next few weeks and months it’s a very different discussion, but I’d be surprised personally. Let’s see where we get to.”
Mr Shu also put on an optimistic face while commenting on his start-up taking its first steps as a public company, commenting:
“Our aim is to build the definitive online food company and we’re very excited about the future ahead.”
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