Deliveroo backed for putting retail investors on IPO menu
Deliveroo’s IPO will be a big pay day for founder Will Shu
Deliveroo’s decision to extend its forthcoming IPO to retail investors has been welcomed by those campaigning to halt the trend of restricting new issues of shares to institutions.
However, one investment platform has raised a new concern that it will prioritise customers, creating a new level of discrimination among investors.
The Amazon-backed food delivery app is expected to list in the Spring with a value of between £5 billion and £7bn.
It is due to unveil further details on Monday, days after revealing that it had chosen to list in London, where the company was founded in 2013.
It is expected to announce a number of offers to show off its positive message. They include a £50m community fund, spread over five years, to help struggling restaurants pay for meals for vulnerable people, and help some of its 50,000 UK riders buy electric scooters.
Deliveroo founder Will Shu, a former investment banker, said: “Far too often, normal people are locked out of IPOs, and the only participants are the institutional investors,” he said.
“I wanted to give as many customers as possible the chance to become shareholders, which is why we’re making 50 million pounds of shares available to them, alongside our restaurant partners and riders.”
The firm’s thousands of riders will receive payments on a sliding scale from a minimum of £200 to a maximum of £10,000, depending on the number of orders that riders have delivered. The average payout per eligible rider is expected to be £440.
Alex Marshall, president of the IWGB union, which represents gig economy workers, said the handouts to riders did not make up for poor pay and conditions. “This is just another PR stunt by Deliveroo to try and divert attention from a workforce that has been exploited since the company’s inception,” he said.
Deliveroo is hoping to follow the Wall Street lead of US counterpart DoorDash, which soared in value when it debuted in December.
It had been thought Deliveroo would follow other market debutants and make its shares available first to institutional investors, but it says retail investors will have an opportunity to buy shares.
The CEOs of investment platforms AJ Bell, Hargreaves Lansdown and Interactive Investor, which together administer more than £200 billion for about two million retail investors in the UK, recently wrote to Treasury minister John Glen demanding an end to the exclusion of private investors from most initial public offerings (IPOs) in the UK.
Russ Mould, investment director at AJ Bell, today said: “It’s great to see Deliveroo extend its IPO to retail investors and not follow the typical route of restricting the shares to institutional investors like pension funds.
“AJ Bell has been campaigning for fairer access for retail investors at the IPO stage and this is a step in the right direction.
“However, it looks like interested parties must have ordered at least one item from Deliveroo to be able to register interest for the IPO and they will need to have downloaded the company’s app so it’s not a simple case of access for everyone with no strings attached.
“Someone hungry for Deliveroo shares probably won’t see that as a big a hurdle to jump through. But if there is big demand for the shares then it looks like the food ordering platform is going to give priority to its more regular customers.
“The idea that the more burgers you’ve ordered, the better the chance of getting shares in the IPO won’t go down well with investors who place high regard on ESG (environment, social and governance) issues.
“However, the mere fact the company is associated with fast food would mean such investors wouldn’t go near it anyway.
“Some people wouldn’t dream of putting money in a company associated with junk food, but there will be others who see a big opportunity.
“A year of various lockdowns has fuelled demand for companies like Deliveroo and there is an expectation that habits formed during the pandemic will remain long into the recovery.
“All this suggests there is likely to be a bun fight for the £50 million worth of customer shares in Deliveroo at the IPO offer.
“Investors may look past the fact that the company is loss making and operates in a highly competitive market. Instead, they will focus on big growth opportunities and potential for Deliveroo to play a key role in consolidating the market through mergers and acquisitions.
“There is also the fact that some investors will see it as an easy way to make a quick 10% to 20% gain, the level at which shares in newly listed companies often ‘pop’ on the first day of dealings.”
At the estimated upper range of its forecast valuation the IPO could trigger a windfall of £500m for Mr Shu who set the company up eight years ago and holds a 6.9% stake.
It would also be a big pay day for Amazon whose 16.2% stake is potentially worth more than £1bn.