Food-delivery startup Deliveroo has started taking investor orders in a share sale of as much as £1.77 billion (€2.06bn), marking the largest initial public offering in the UK since September.
Deliveroo is selling shares at £3.90 to £4.60 apiece, according to a statement on Monday, valuing the company at £7.6-£8.8 billion. The offering is the biggest float on the London Stock Exchange since THG’s £1.88 billion offering in September, according to data compiled by Bloomberg.
Even at the low end of the price range, Deliveroo would have the highest market value upon admission of any company to go public in London since Allied Irish Banks plc listed in June 2017 with a market value of €12 billion.
The company plans to sell as many as 384.6 million shares, an amount that could rise by as much as 10 per cent if there’s enough demand. Besides the £1 billion of new shares the company aims to sell, existing shareholders will also sell stock in the IPO, the company said. The company plans to invest its proceeds to fuel growth.
Deliveroo is coming to the market at a time when coronavirus restrictions have caused soaring demand for food delivery. Gross transaction value – the total value of purchases on its platform – rose 121 per cent in January and February versus the same period last year, the company said, after a 64 per cent increase in 2020.
"Bringing the food category online represents an enormous market opportunity," it said, adding that less than one of 21 meals a week including breakfast lunch and dinner takes place online now. Its shareholders include Amazon. com, which holds a 16 per cent stake, venture capital firms DST Global and Index Ventures, which own about 10 per cent each, and US mutual-fund company T Rowe Price Group. with a 8.1 per cent interest.
Deliveroo is listing with two classes of shares, which will give chief executive Will Shu outsized voting rights for three years. Mr Shu holds 6.1 per cent of the company according to a registration document, which would be valued at as much as £540 million at the top end of the valuation expectations.
The offering comes after a British government-backed report this month made a slew of recommendations to reform UK listing rules, including allowing such governance structures on the premium segment of the LSE, but it could be months before these are implemented.
In its last full-year results, Deliveroo said it had been profitable “at the operating level” for more than six months in 2020. Still, the company posted an underlying loss for the year of £223.7 million.
Market opportunity for the sector “has always been there”, but there’s also competition, said Shaunak Mazumder, a global equities fund manager at Legal and General Investment Management, adding that he would have preferred for the offering “to come in slightly below the range to give more of an IPO discount and to account for possibly slower growth as we transition out of lockdown”.
Deliveroo competes with the likes of Uber Eats and Just Eat Takeaway.com, besides a host of smaller grocery delivery apps. Progress in vaccine rollouts across the UK, Deliveroo’s biggest market, threatens to lead to a drop in at-home dining later this year. Still, if the company manages to hold on to its lockdown gains and keeps up with new restaurant signings, it would be “attractive”, Mazumder said.
The company won’t be profitable again until 2023, according to some analyst estimates, said Dev Chakrabarti, a portfolio manager at AllianceBernstein.
Food-delivery companies also face increasing questions about the gig economy model, especially after a watershed ruling in Britain’s Supreme Court last week, under which Uber will reclassify all of its 70,000 drivers in the country as workers, who are guaranteed specific benefits under UK law.
Deliveroo this month announced plans to create a fund to help restaurants and grocers in rebuilding their businesses after the pandemic, and also will give its “longest-serving and hardest-working riders” individual payments of as much as £10,000. - Bloomberg