Interactive Investor

Deliveroo IPO: will it encourage more UK flotations?

4th March 2021 14:10

Graeme Evans from interactive investor

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The delivery giant has confirmed it will list in London, which could spur on more domestic IPOs.

Hopes for more home-grown technology IPOs got a major boost today when Deliveroo said its planned flotation will take place in London following Rishi Sunak's reform of listing rules.

The dual class share structure proposed in the Budget has been welcomed by the Amazon-backed food and grocery delivery app, given that it preserves the ability of founder and CEO Will Shu to execute his long-term plans for the company.

Such share structures are common on Wall Street, which is why the chancellor has taken action so more innovative companies can list on their home market rather than overseas. However, the move has raised concerns about corporate governance standards and potential curbs on the ability of shareholders to hold management to account.

In an announcement coordinated with the government, Deliveroo ended speculation about the location of its forthcoming float and said its dual-class structure would only last three years. No date has been revealed for the IPO, which is set to value the business at about $7 billion. (£5 billion).

Set up in London in 2013, Deliveroo now works with more than 140,000 restaurants and some 110,000 riders globally. It has also tapped into the significant growth potential of online grocery deliveries after setting up a series of partnerships with supermarket chains.

Claudia Arney, who was appointed to lead the Deliveroo board in November, highlighted the point made in Lord Hill's listings review that the vision of company founders is often a key selling point to investors.

She added: “The time-limited dual-class structure would provide Will and his team with the certainty needed to execute against their ambitious growth plan to become the definitive online food company.”

Alongside the dual-class structure, Deliveroo pledged to have a strong commitment to corporate governance standards, including through a majority independent board of directors. Its recent appointments have included Next CEO Simon Wolfson as a non-executive director.

While the float is expected to align with Lord Hill's recommendations, it is likely to take place before the proposed new rules are cleared by the Financial Conduct Authority.

The next big tech IPO in the pipeline in London is Copenhagen-based Trustpilot, which this week confirmed its intention to float in a move that could value the business review platform at £1 billion. Moonpig (LSE:MOON) shares have already got off to a strong start this year, while Hut Group owner THG (LSE:THG) was London's biggest flotation of 2020 with a £5.4 billion valuation.​​​​​​​

THG isn't currently eligible for the FTSE 100 index, however, as founder Matt Moulding has a golden share that allows him to reject a hostile takeover. The company is currently worth about £7 billion, having risen from 500p to 707p today.

The Deliveroo IPO would mark a rapid turnaround in fortunes after the gig economy business told the Competition and Markets Authority (CMA) last spring that it would fail financially without investment by Amazon (NASDAQ:AMZN).

The re-opening of restaurants for deliveries during the Covid-19 pandemic improved its financial positions in the summer, with the CMA concluding in August that Amazon’s 16% stake would not substantially lessen competition. However, it vowed to revisit the decision if the US e-commerce giant increased its control over Deliveroo.

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