³ÉÈËÓ°Òô

Deliveroo its IPO pricing at the bottom of its range, set at £3.90 per share, giving the company a market capitalisation of £7.59bn. This comes as no surprise following reports leading up to the announcement of a reduced offer range from £3.90-£4.60 per share to £3.90-£4.10. A spokesperson from Deliveroo stated that ‘Given volatile global market conditions for IPOs, Deliveroo is choosing to price responsibly within the initial range.’ Upon the commencement of its conditional dealings on Wednesday, 31 March 2021 on the standard listing segment on the Main Market of the London Stock Exchange (LSE), the tech giant saw its share prices plummet by 30% within the first 45 minutes, which eventually recovered to a closing price of £2.87 per share. This comes at a time when Deliveroo faces scrutiny by major investors over its business model, in relation to the dual-class share structure as well as working practices concerning its riders.

Operating within the gig economy, Deliveroo identified in its the risks associated with its involvement in ongoing legal proceedings ‘including individual and collective legal claims and investigations, audits or claims by labour, social security, pension and/ or tax authorities, under which it is claimed, amongst other things, that riders are (or have in the past been) engaged as employees (or, where applicable, as workers or quasi-employees), rather than as independent contractors’. This was picked up and discussed by 27 investors at a meeting organised by ShareAction, a charity dedicated to responsible investment, on 25 March 2021, after the results of a survey sent out to Deliveroo riders by the Bureau of Investigative Journalism and the Independent Workers Union, revealed that as independent self-employed contractors, many riders receive an hourly rate below the minimum wage. Parallels have been drawn from the Supreme Court’s decision (Uber v Aslam [2021] UKSC 5) to classify workers at Uber as employees, which if Deliveroo faces similar outcomes, could implicate the risk of legal action and increased costs for the company in at least five of its main markets. This does not seem too unlikely as the Italian government has already threatened criminal prosecution after finding that Deliveroo should have contracted its riders on a ‘quasi-employee basis’.

Major investors were quick to voice doubts about the offer including Andrew Millington, head of UK equities at Aberdeen Standard who commented ‘We will not be taking part in the Deliveroo IPO as we are concerned about the sustainability of the business model, including but not limited to its employment practices, and also the broader governance of the business.’ It is yet to be seen how retail investors have reacted, as part of a community offer enabling UK-based customers to apply for shares on the Deliveroo app, once unconditional dealings begin on the 7 April 2021.

Concerns do not stop there for investors with questions surrounding Deliveroo’s dual-class share structure on the standard listing segment. Whilst the IPO garnered support from Chancellor Rishi Sunak, the share structure seems to be a point of contention for major investors including Legal & General, Aberdeen Standard and AVIVA. This is due to the level of control that CEO Will Shu will retain over the running of the business, such as the power to veto any attempt to oust him from the board and block any takeovers for a period of three years after the IPO. For more information, see: Deliveroo plans dual-class share structure IPO.

This structure currently only allows for a standard listing, however, following the recommendation of the , the Financial Conduct Authority (FCA) is anticipated to permit dual-class share structures on the premium listing segment, in addition to the standard listing segment. The government is keen to make London listings more competitive and flexible, in particular to attract tech companies which may otherwise choose to list in the US, Hong Kong or Singapore where dual class structures are permitted (with additional safeguards). Whilst the recommendation could lead to dual-class structures becoming more commonplace on the LSE and once the rules are relaxed, Deliveroo could qualify for the a premium listing and join the FTSE 100, Legal & General has urged the FCA for this not to go ahead in Deliveroo’s case, as this would pigeonhole the asset manager to invest in the company through its passive investment business, stating ‘It is important to protect minority and end-investors against potential poor management behaviour that could lead to value destruction and avoidable investor loss’.

Similar investor backlash was seen when the Hut Group opted for a dual-class share structure, yet did gain enough investor support to become one of the largest IPOs of 2020. For more information, see: Deliveroo whets investor appetite with £8.8bn IPO. With the added working practices and regulatory concerns, Deliveroo may not see the same kind of future success, however, having already gained investor support from the likes of Amazon, the tech company remains confident, commenting ‘Deliveroo has received very significant demand from institutions across the globe…The deal is covered multiple times throughout the range, led by three highly respected anchor investors.’

Our upcoming ECM trend report will also look at IPO activity in more detail, including recent legal and regulatory developments anticipated to have an impact on this area in 2021 and beyond.