Deliveroo slumps 30% at its London trading debut after pricing shares well below the lower end of IPO range

Deliveroo CEO Will Shu
Deliveroo CEO, Will Shu.

  • Deliveroo shares tumbled 30% at its market debut by opening well below the price of its IPO.
  • The firm’s shares fell to as much as 271 pence per share, below its offering price of 390 pence.
  • Deliveroo began trading on the London Stock Exchange on Wednesday under the ticker “ROO.”
  • See more stories on Insider’s business page.

Deliveroo fell as much as 30% in the food delivery-startup’s public trading debut on Wednesday, marking a downbeat start to the biggest initial public offering in London in a decade.

The company’s shares were trading at an intraday low of 271 pence ($3.78) per share, lower than the offering price of 390 pence ($5.35). The price recovered to 313 pence ($4.31) at 8:45 a.m. London time.

“Deliveroo has gone from hero to zero as the much-hyped stock market debut falls flat on its face,” said AJ Bell investment director Russ Mould. “It had better get used to the nickname ‘Flopperoo’.”

The UK-based company had priced 384.6 million shares at 390 pence per share, the bottom of its marketed range between 390 pence and 410 pence ($5.65), hoping to target a valuation of 7.6 billion pounds ($10.5 billion). But it’s the first of London’s top five deals this year that wasn’t able to open at its highest targeted valuation, shedding more than 2 billion pounds ($2.7 billion) in market value on its trading debut.

Analysts say its IPO took a turn for the worse when multiple fund managers said they wouldn’t back the business due to concerns about working practices, spooking many that applied for its shares and possibly racing to dump them.

“It reflects the cautious approach big funds have shown to the stock amid concerns about working practices and governance,” said Neil Wilson, chief market analyst at Markets.com. “A lot of the big UK funds are not on side, which was failure number one.”

Amazon-backed Deliveroo, which trades on the London Stock Exchange under the ticker symbol ROO, raised 1.5 billion pounds ($2.1 billion) via proceeds from investors. It could have raised 1.77 billion pounds ($2.4 billion) had the company priced its shares at the higher end of its IPO range. But its offering was priced at the lower end because of a drop in shares for food-service firms such as JustEat and Delivery Hero on Monday, the Wall Street Journal reported, citing a spokesperson.

The company grew to the point of launching on the stock market partly thanks to the exploitation of its workers, said Connor Campbell, a financial analyst at SpreadEx. “Now, said exploitation is one of the main reasons behind its sour start to life as a public company,” he said.

It approached its market debut uniquely compared to other IPOs. Only institutional investors are able to participate in Deliveroo’s market debut on March 31, but private investors buying into its 50 million pounds ($68.6 billion) community offer can participate once unconditional trading begins on April 7.

Deliveroo was founded in 2013 by former banker Will Shu and his childhood friend Greg Orlowski. The British firm offers food, groceries, and alcohol for delivery on demand via an app, and ferries goods out to consumers through a network of gig-economy riders.

Its IPO will be a test for the UK tech startup industry, where valuations for unprofitable, high-growth companies have become increasingly bullish, even as public investor appetite for riskier businesses remains largely untested.

The company faces stiff competition in the sector from direct rivals Uber Eats and Just Eat, plus niche grocery delivery apps such as Gorillas, Getir, and Weezy.

Deliveroo primarily makes money by charging its restaurant and grocery partners a commission on each order, up to 35% in some cases. Though hoping to permanently benefit from an uplift in takeaway orders during the pandemic, the firm remains loss-making.

The firm reported a £225.5 million ($311 million) pre-tax loss for the full-year 2020, a narrower loss than the £317.7 million ($438 million) it lost in 2019. Revenues were up 54% to £1.1 billion ($1.5 billion) from 2019.

Other revenue streams include its subscription programme for regular consumers who want lower delivery fees; food procurement deals; licensing out its “Editions” dark kitchens to restaurant brands; and its “Signature” marketing platform.

Its listing is also closely watched thanks to its dual-class share structure, which sees Shu retain control over the firm in a model similar to US listings. The CEO will be granted 20 votes per share, while other shareholders will receive one vote per share.

The IPO is set to make Shu a wealthy man, since he plans to sell approximately $36 million in shares, leaving him with a stake in the company worth around $662 million.

While Deliveroo has indicated that demand from institutional investors exceeded supply in the run-up to its IPO, a number of big firms publicly stated they would not back the company.

Aviva, Rathbones, Legal & General, and others variously cited Deliveroo’s lack of profitability, and the reputational and financial risk posed by the fact its riders are gig-economy contractors rather than workers entitled to a minimum wage.

That comes after the Supreme Court ruled in February that ride-hailing giant Uber needed to reclassify its drivers, also deemed contractors, as workers and pay them holiday pay and a minimum wage.

The IWGB, a British union representing gig economy workers, said it was organizing a strike of Deliveroo riders on April 7, when unconditional trading begins.

Goldman Sachs and JPMorgan are joint global coordinators on Deliveroo’s IPO, while Bank of America, Citigroup, Jefferies, and Numis Securities are join bookrunners.

Insider breaks down everything investors need to know about Deliveroo’s IPO – from its dual class structure to who’s making money and who’s shunning it.

Read the original article on Business Insider

Amazon-backed Deliveroo heads to its $2.5 billion IPO facing rider strikes and investor snubs over its business model

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FILE PHOTO: Abdelaziz Abdou, a Deliveroo delivery rider, poses with a bag of Aldi groceries, as discount supermarket chains Aldi and Lidl look poised to accelerate their push into home delivery to satisfy burgeoning demand for online grocery shopping in a shift expected to endure beyond the coronavirus crisis, in London, Britain, June 17, 2020.   REUTERS/Toby Melville
Abdelaziz Abdou, a Deliveroo delivery rider, poses with a bag of Aldi groceries, London.

  • Amazon-backed Deliveroo is under fire from delivery riders and fund managers ahead of its IPO next month.
  • They say its reliance on gig economy workers is variously unethical or a long-term cost risk.
  • The float is also test of UK investor appetite for unprofitable startups.
  • See more stories on Insider’s business page.

Amazon-backed food delivery firm Deliveroo has faced a barrage of criticism in the run-up to its highly anticipated float on the London Stock Exchange, as big-name investors and activists criticized its reliance on gig economy labor and questioned its underlying business model.

Deliveroo is set to float on March 31, aiming to raise up to $2.5 billion and at a target valuation as high as $12 billion.

At least six investment firms have said publicly they would not invest in Deliveroo’s float, including Aviva Investors, Rathbones, Legal & General, and Standard Life Aberdeen.

Also in the last week, the Bureau of Investigative Journalism published an analysis of 300 Deliveroo riders’ earnings, based on invoices voluntarily submitted online, finding that two-thirds made less than the minimum wage.

Meanwhile the IWGB, a small but vocal trade union for gig economy workers, says it has organized Deliveroo riders to strike when the firm’s float opens to retail investors on April 7, and published an investor briefing advising prospective backers to call the firm out on riders’ rights.

Deliveroo’s IPO will be a test for the UK startup industry, where valuations for privately held firms have become increasingly bullish. When CEO Will Shu chose to list in London rather than the US, it was heralded as a victory for a post-Brexit UK.

But its target valuation, as high as $12 billion, lack of profitability, and perceived business model risks have provoked skepticism this week.

The firm in its prospectus posted a £225.5 million ($311 million) pre-tax loss for the full-year 2020, a narrower loss than the £317.7 million ($438 million) it lost in 2019. Revenues were up 54% to £1.1 billion ($1.5 billion) from 2019.

“What’s unusual is that it’s going public at such a high valuation, at the top range, and it hasn’t made a profit,” Susannah Streeter, investment analyst at Hargreaves Lansdown, told Insider. “If it has to change the working conditions for its riders, that’s going to eat into its profit forecast.”

Uber’s Supreme Court loss in February, which forced the ride-hailing firm to reclassify its drivers as workers with more rights, has raised the specter of regulatory action for Deliveroo.

While Deliveroo has won or settled similar regulatory fights in the UK, it has lost battles in Spain and Italy, and has set aside £112.2 million to deal with fines and costs. It still faces action from the IWGB in the UK, as well as legal action in France and the Netherlands.

“The winds of change are blowing, in terms of the gig economy going through a big upheaval,” added Streeter.

In its 224-page investor prospectus, Deliveroo acknowledges the risk, stating:

“The independent contractor status of riders, which applies in most of the jurisdictions in which we operate, has been and continues to be the subject of challenge in certain markets, including in our key markets.

… The costs associated with defending, settling, or resolving pending and future litigation or governmental agency investigations relating to the independent contractor status of riders could be material to our business (including additional taxes and penalties) and, regardless of outcome, could negatively affect our reputation.”

Aviva, the first investment firm to say it wouldn’t back Deliveroo, cited its gig-economy model as a risk. (Insider’s Theo Golden subsequently analyzed Aviva’s holdings and found it had exposure to a number of other gig-economy firms, such as Uber.)

Equally seriously, fund managers are skeptical that Deliveroo can parlay its pandemic growth into long-term success.

Rathbones’ chief strategist told Insider that Deliveroo’s continued unprofitability made him wary, adding that the boom in takeaway during the pandemic would not continue after lockdowns lift. “I think people are extrapolating that this trend will continue, and I don’t believe that,” he said.

Streeter is likewise skeptical. “I think more people are going to want their food delivered from a waiter’s tray than two miles on the back of a person’s bike,” she said.

Deliveroo signaled that it has had “significant” investor demand for its stock debut, which takes place March 31.

“This proud British business looks forward to listing on the London Stock Exchange,” a spokesperson said, adding: “The Roadshow began on Monday and the deal was covered by demand across the full price range by the end of the first morning.

“Demand has continued to build since then, including via our community offer, and we look forward to welcoming new shareholders next week alongside our currently highly respected existing investors.”

And while the firm acknowledged in its prospectus the risks to its business model from any reclassification of its 100,000-plus delivery riders, it publicly shot back against both the Bureau of Investigative Journalism’s research and the IWGB union.

The firm argued that its riders were given “freedom” to accept or reject deliveries and that it received a regular flow of new driver applications. It argued that the Bureau’s findings were “misleading” and “unverifiable” and that it had analyzed earnings of a minority of its 100,000-plus riders. It said riders can earn £13 per hour, higher than the national living wage of £8.72 per hour.

Post-pandemic growth is possible, according to Streeter, if the firm can boost the amount customers spend per order.

“If Deliveroo can corner the higher-end restaurant market – I think it’s still got a bit of a takeout tag attached to it – there is potential for growth,” she said. “That could offset losses if it was forced to change worker conditions.”

“But,” she added, “It does have competition, Just Eat, Uber Eats. There’s lots of competition for Deliveroo’s business.”

Read the original article on Business Insider

Saudi-backed $2 billion health firm Babylon is selling its Canada operations as part of a $70 million licensing deal

Ali Parsa CREDIT Jack Lewis Williams for Tailor Made London
Babylon Health CEO Ali Parsa.

  • $2 billion health-tech firm Babylon Health is selling its Canada operations to telco Telus.
  • The two launched an app, Babylon by Telus, in 2019 that offers Canadians virtual consultations with doctors.
  • Babylon will license its tech to Telus as part of a new long-term partnership.
  • Insider took a deep-dive into Babylon’s business amid SPAC speculation, which you can read here.

$2 billion, Saudi-backed health-tech startup Babylon Health is to sell its Canadian operations to telecoms firm Telus in a change-up to an existing partnership, Insider can reveal.

Babylon Health partnered with Telus’ health division, Telus Health, in 2019 to launch a free app that gives Canadian users the ability to schedule virtual appointments with doctors, as well as run any symptoms of illness through a “chatbot” symptom checker. The Babylon by Telus Health app is somewhat similar to Babylon’s app in the UK, called GP at Hand.

The partnership saw Babylon set up operations in Canada, hiring on-the-ground clinical operatives and physicians.

Insider understands that Telus is set to acquire Babylon’s operations in Canada, and has signed a new multi-year deal to continue licensing its technology. The deal is thought to be worth around $70 million.

Insider learned of the new deal after Babylon CEO Ali Parsa hinted at it during an all-hands meeting.

babylon by telus health
The Babylon by Telus Health app

A spokeswoman for Babylon Health told Insider: “We are delighted to have signed a new long-term strategic partnership and multi-year licensing agreement with Telus.

“With Babylon’s focus on the delivery and deployment of our high-quality AI-powered technology platform, Telus will take on operational control of Babylon Canada, while still leveraging Babylon’s service delivery expertise and experience.”

While Telus has praised uptake of the app in Canada, it has faced local concerns over its privacy policies, and reportedly from clinicians.

The privacy commissioner for the province of Alberta launched an investigation in April 2020 into the app’s privacy policies, which state that a “video recording of patient visits is copied and stored on Babylon’s servers, and that the video may be shared with corporate partners and entities outside of Canada, including foreign governments.”

A spokesman for the Office of the Information and Privacy Commissioner of Alberta told Insider the report was due soon but declined to give a timeline.

Telus and Babylon welcomed the investigation at the time and said they were confident that the privacy requirements were up to scratch.

Read Insider’s full deep-dive into Babylon Health’s disruptive rise to become a $2 billion company, including conversations with Parsa, investors, critics of the company, and analysts.

Read the original article on Business Insider

Amazon-backed food delivery firm Deliveroo is now worth $7 billion after a $180 million pre-IPO funding round

Deliveroo CEO Will Shu
Deliveroo CEO Will Shu at President Macron’s tech summit in France in 2018. Shu said he was the only one who didn’t turn up in a suit.

  • Food delivery firm Deliveroo is now worth $7 billion after raising $180 million in fresh funding.
  • The Amazon-backed company is preparing to go public later in 2021.
  • Insider reported this week that UK-based Deliveroo could be valued at up to $13.6 billion when it floats, with one source pegging April for an IPO date.
  • Visit Business Insider’s homepage for more stories.

Amazon-backed food delivery firm Deliveroo is now valued above $7 billion after raising $180 million in fresh capital.

The new round was led by two of Deliveroo’s existing backers, Durable Capital Partners and Fidelity. Both are investors that put money into public as well as private firms.

UK-headquartered Deliveroo, which has experienced a boom in custom amid national lockdowns, also on Sunday confirmed plans for a stock market debut. The company, though run by American CEO Will Shu, is expected to list on London’s Stock Exchange.

Insider reported earlier this week that an IPO could value Deliveroo at £10 billion ($13.6 billion), and that the firm was potentially eyeing an April float.

That Durable Capital and Fidelity are upping their stakes now signals confidence in Deliveroo’s prospective share price and future growth. As one industry source put it: “Why buy in at $13 billion when you can buy in at $7 billion now?”

The gambit has worked before.

Both Durable Capital and Fidelity invested in Deliveroo’s US equivalent, DoorDash, around six months ahead of its December IPO at an approximately $16 billion valuation. On IPO, DoorDash topped a $32 billion valuation and its market cap now hovers around the $60 billion mark.

Deliveroo is based in the UK and competes with the likes of Uber Eats in Europe and parts of Asia. It does not currently operate in the US. It offers food, alcohol, and grocery deliveries on demand via an app and relies on a network of gig-economy cyclists and motorcyclists to ferry items to customers.

FILE PHOTO: A courier for food delivery service Deliveroo rides a bike in central Brussels, Belgium January 16, 2020. Picture taken January 16, 2020. REUTERS/ Yves Herman
A courier for food delivery service Deliveroo rides a bike in central Brussels

It was founded in 2013 by Shu, formerly an investment banker, and Greg Orlowski. Orlowski left in 2016, and Shu remains the CEO of the business.

An IPO would cap a rollercoaster year for the firm.

As is typical for high-growth, venture capital-backed firms, Deliveroo has been mostly loss-making to date. As the UK, its primary market, went into lockdown in the spring and restaurants shuttered, the firm warned it may collapse.

The situation was exacerbated by the UK’s competition regulator denying Deliveroo access to a large tranche of $575 million in funding, led by Amazon in 2019, on competition grounds. Deliveroo laid off about 300 staffers to reduce costs.

The regulator eventually cleared the funding in April, concluding there was no antitrust threat from Amazon’s involvement. Deliveroo’s business also began to improve as restaurants turned to delivery apps for revenue and consumers upped their takeaway orders, bored of home cooking.

Having initially warned of collapse, Deliveroo towards the end of the year said it became “operationally profitable” in 2020.

Its most recent publicly available financials showed increased revenue for 2019 of $1 billion, a gross profit margin of around 24%, and heavier year-on-year pre-tax losses of $393 million.

Got a tip on Deliveroo? Contact the reporter behind this story, Shona Ghosh, at sghosh@businessinsider.com, shonaghosh@protonmail.com, or +447412061471 for Signal.

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