Deliveroo’s hopes that its IPO will prove to be the most valuable listing on the London Stock Exchange in a decade appear under threat after a number of high-profile City fund managers publicly announced they will not be investing in it.
Yesterday another two, M&G and Legal & General Investment Management added themselves to a list that already included Aviva and Aberdeen Standard. The latter two made their announcements earlier in the week.
Fears around how a potential legal change to the status of Deliveroo’s delivery riders, who operate as independent contractors paid on a per-delivery basis, are proving one major turn-off. The company’s IPO prospectus revealed legal challenges to that status underway in the UK and Europe. Should those succeed, the food delivery and logistics company admits that would force a change of its underlying business model.
But L&G yesterday pinpointed governance concerns around the company as the main reason why it is choosing not to invest in the IPO. Recent changes to premium listings rules designed to encourage high-growth technology companies to opt for a London listing allow for dual share classes for up to 3 years.
Deliveroo has taken advantage of that. Its founder William Shu’s voting shares have been assigned enough weight to give him control over the company’s board for the first three years of its life as a public enterprise.
L&G is not happy with the change and said it has urged the Financial Conduct Authority to step in to block companies with dual class shares that give disproportionate voting power to some share holders from inclusion in FTSE indices. In a statement the fund manager outlined its position with:
“It is important to protect minority and end-investors against potential poor management behaviour that could lead to value destruction and avoidable investor loss.”
The still lossmaking company has targeted an IPO valuation of between £7.6 billion and £8.8 billion, which would make it the biggest float since commodities giant Glencore in 2011. It believes market appetite for fast growth technology-first companies disrupting traditional industries is strong enough to propel it to such a lofty valuation despite a lack of profitability.
However, with so many of the big investors that would be expected to form the backbone of institutional interest in a major London IPO ruling themselves out, there has to be questions around whether demand will be enough for it to achieve the targeted valuation. The company itself is still making confident noises, yesterday stating it has already received offers for the £1.6 billion of shares it plans to sell to raise new funding after “very significant demand from institutions across the globe.”
The still open question of if those offers are based on Deliveroo’s target valuation range, and where in that range, will be answered next week.
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