Deliveroo shares dive 26% as London debut turns sour

The stock plunged as much as 31 per cent in its first minutes of trading.
The stock plunged as much as 31 per cent in its first minutes of trading.PHOTO: NYTIMES

LONDON (BLOOMBERG) - Deliveroo Holdings collapsed in its London public debut as investors abandoned the food delivery start-up criticised for its labour practices and corporate governance, just as the broader technology sector falls out of market favour.

The stock plunged as much as 31 per cent in its first minutes of trading to trigger circuit breakers - the worst performance in decades for a big British listing. The stock closed down 26 per cent at £2.87.

Deliveroo's £1.5 billion (S$2.78 billion) initial public offering (IPO) was meant to be a triumph for the City in its post-Brexit push to lure tech firms away from New York. Instead, the first-day performance looks like a disaster.

As appetite sours for stocks that flourished during the lockdown, institutional investors have rebuffed the bellwether for the gig economy in droves. Asset managers including Legal & General Investment Management said they would not buy the stock because Deliveroo's treatment of couriers does not align with responsible investing practices.

Investors have also balked at the dual-class structure that allows chief executive Will Shu to retain control of the business for three years. Hundreds of riders are planning a protest next week to lobby for better pay and conditions.

The shares were priced at £3.90, the bottom end of the initial range. Among the five biggest deals in London this year, Deliveroo is the only company that did not receive the highest targeted valuation, data compiled by Bloomberg News show. Goldman Sachs Group and JPMorgan Chase & Co, the lead banks on the offering, declined to comment.

"It's not a great endorsement of setting IPOs in the UK," said Mirabaud Securities analyst Neil Campling. "You have the combination of poor timing, as many 'at home' stocks have been under pressure in recent weeks, and the well-publicised deal 'strike' by a number of A-list institutional investors."

Investors are also souring on the fast-growing companies that benefited during the pandemic. Doordash has slumped 24 per cent this month, and European rivals Just Eat and Delivery Hero have also fallen this year.

"The window for tech-driven IPOs just couldn't be worse," said Mr Oliver Scharping, a portfolio manager at Bantleon. "Deliveroo was trying to keep the window open with brute force."

The company and its banks also sought a premium valuation for the stock. At the offering price, Deliveroo fetched 6.4 times last year's revenue, versus a multiple of 5.8 for Just Eat. At the middle of the original price range, the stock would have been valued at 19 times gross profit versus less than seven times for its Dutch rival, said Alberto Tocchio, a portfolio manager at Kairos Partners.

Among the losers in the IPO will be retail investors, who were given the option to buy shares via Deliveroo's app. Retail investors will only be able to trade the stock from April 7.