Deliveroo trims value of its London float

British food delivery start-up blames volatile market conditions

A Deliveroo rider in London. The company now expects to be listed at a market value between £7.6 billion and £7.85bn. AFP

Deliveroo said it will price its shares for its initial public offering towards the bottom end of the range because of “volatile” market conditions.

The British food delivery start-up now expects to be listed with a market capitalisation of between £7.6 billion ($10.46bn) and £7.85bn instead of its earlier target of £7.6bn to £8.8bn.

Deliveroo initially intended to price its offering at between £3.90 and £4.60 per share but that has narrowed to between £3.90 and £4.10.

Demand for its listing is expected to exceed the full deal size, potentially delivering London its largest IPO in a decade.

“Deliveroo has received very significant demand from institutions across the globe,” the company said on Monday.

“The deal is covered multiple times throughout the range, led by three highly respected anchor investors. Given volatile global market conditions for IPOs, Deliveroo is choosing to price responsibly within the initial range and at an entry point that maximises long-term value for our new institutional and retail investors.”

Deliveroo, which has expanded into Europe, Asia, Australia and the Middle East, revealed its London listing plans earlier the month in a move prompted by the UK’s planned overhaul of listings in a post-Brexit shake-up.

The listing on March 31 is set to be London's biggest since Glencore in May 2011 and it will be the biggest tech IPO on the London Stock Exchange, far outstripping The Hut Group, which listed for £1.88bn last September.

However, the company opted not to pursue a premium listing, which allows founder and chief executive Will Shu to retain enhanced shareholder rights. This rules it out of inclusion in the FTSE indices.

Deliveroo’s lower valuation target follows concerns from fund managers over the sustainability of the company’s business model because it relies on gig-economy workers.

Last week, Aviva Investors, which manages £365bn of assets, said it would not invest because Deliveroo’s riders in the UK did not receive the minimum wage, sick leave or holiday pay.

David Cumming, chief investment officer at Aviva, said investors take social responsibilities more seriously.

“A lot of employers could make a massive difference to workers’ lives if they guaranteed working hours or a living wage, and how companies behave is becoming more important,” he told the BBC.

“We won’t be investing in Deliveroo for a number of reasons but that is one of them.”

Other UK investment companies that said they would not be investing in the meal delivery service include Aberdeen Standard and BMO Global.

Deliveroo, which Mr Shu set up in 2013, said it would offer riders bonuses of between £200 to £10,000 when it floats, depending on the number of deliveries they have made.

“Riders are self-employed because this gives them the freedom to choose when and where to work,” a Deliveroo representative said.

At the weekend, the Independent Workers' Union of Great Britain urged the company’s UK riders to go on strike when the company floats on the stock market.

The trade union said a strike would highlight dissatisfaction with the company's business model and its approach to workers' rights.

The union lost a legal challenge to Deliveroo in 2018 in a case that sought to secure rights such as the UK minimum wage for riders. The court ruled that riders were self-employed.