London Daily

Focus on the big picture.
Saturday, May 31, 2025

London needed a win. Instead it got its worst IPO in history

London needed a win. Instead it got its worst IPO in history

At first glance, Deliveroo's stock market debut should have been a runaway success. The food delivery startup was a darling of the UK tech scene, and growing fast thanks to surging demand during the pandemic. Amazon recently bought 16% of the company in a major vote of confidence.

But London's biggest IPO since 2011 was an unmitigated disaster. The stock plunged when trading started on Wednesday, and the shares eventually closed 26% below their listing price, wiping almost £2 billion ($2.8 billion) off Deliveroo's initial market capitalization. The stock lost another 1.9% on Thursday.

The opening day performance marks the worst London debut for a major IPO in at least two decades, according to data provider Dealogic. One of the company's bankers told the Financial Times that it was "the worst IPO in London's history."

Why did investors shun Deliveroo when they couldn't get enough of rivals including DoorDash, which soared 85% in its Wall Street debut last year? A host of factors were behind the flop, experts say, including pricing, timing, uncertain business prospects, concerns over how the company treats workers and increased regulatory risks facing gig economy companies.

"The initial price was just incorrect," said Alasdair Haynes, the CEO of Aquis Exchange, an upstart rival to the London Stock Exchange and the CBOE. "The people with egg on the face here are the advisers," he added.

JPMorgan Chase (JPM) and Goldman Sachs (GS) were the lead investment banking advisers on the IPO. JPMorgan declined to comment. Goldman Sachs did not respond to a request for comment.

Citing "volatile global market conditions," Deliveroo had set the IPO price at the very bottom of the range it was targeting, despite insisting that it had "very significant demand from institutions across the globe." But even that was way too high for investors to stomach.

Regulatory risk


While recent stock market jitters didn't help, concerns about regulatory changes that could affect how gig economy companies pay their workers were a much bigger factor, said Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown.

Several large institutional investors, including Aberdeen Standard Investments and BMO Global Asset Management, pointed to regulatory risk and the limited rights given to Deliveroo workers when they announced days before the IPO that they would not apply for shares.

Deliveroo's listing came just two weeks after Uber (UBER) decided to reclassify all its drivers — but not its food delivery couriers — as workers, a move that could force other gig economy companies to rethink how they operate.

The decision followed a UK Supreme Court ruling that Uber drivers should be classified as workers, and not independent contractors, entitling them to minimum wage, paid vacation time and a pension.

In light of the Uber ruling, Deliveroo's practice of hiring riders as independent contractors with limited rights is "a significant financial risk for shareholders," James Bevan, chief investment officer at CCLA, an asset manager for charities and religious organizations, said in a video commentary ahead of the listing.

Forced pension contributions would compress Deliveroo's already thin margins, added Lund-Yates.

Deliveroo has yet to turn a profit, despite conditions being "as good as they have ever been" for a food delivery service, and it is losing money on most if not all deliveries, she added. "If you add that on top of the regulatory risk there's a huge question over how margins get off the ground."

Investors also expressed concerns about future growth, especially as the United Kingdom exits lockdown and customers return to dining out in restaurants.

Deliveroo also faces stiff competition from rivals Uber Eats and Just Eat Takeaway.

"We find it very difficult to understand how we can value a company that has yet to turn a profit and yet where the forward looking perspective for the business opportunity is quite so uncertain," said Bevan.

Deliveroo founder and CEO Will Shu was upbeat about the company's prospects on Wednesday, pointing to plans to invest in delivery-only kitchens and provide customers with more choice. "Our aim is to build the definitive online food company and we're very excited about the future ahead," he said in a statement.

Two classes of shareholders


Deliveroo's ownership structure may also have played a role in its icy stock market reception. It has two classes of shares, allowing its founder to retain control of the company following an IPO, which "may have been on the minds of some of the institutional investors," according to Lund-Yates.

Dual class shares are allowed on the London Stock Exchange but not for its premium segment, which provides the pool of blue-chip companies that make up indexes such as the FTSE 100 (UKX). The UK government is considering removing that restriction, despite opposition from major institutional investors.

"We have strong reservations about allowing dual class share structures into the premium segment," head of UK equities at Aberdeen Standard Investments, Andrew Millington, said in a statement shared with CNN Business. "We believe that the high standards of the premium listing segment are important to provide protection and reassurance to the many millions of individuals who have their savings invested in these companies," he added.

But there's more to the Deliveroo story. After all, many tech companies use the same structure. Brent Hoberman, the co-founder of Founders Factory, an accelerator that helps startups to grow, pointed to e-commerce company The Hut Group, whose shares soared in their London IPO last September, as an example.

Dual class shares are also common in the United States and allowed on stock exchanges in Hong Kong, Singapore and China. They are also permitted in Amsterdam, which has overtaken London as Europe's top share trading center following Brexit.

Another hefty blow to London


The Deliveroo disaster could deal another blow to London, and its renewed efforts to attract more tech company listings.

Brexit has forced banks to relocate some activity away from London, putting its undisputed position as the region's top financial capital at risk.

Finance Minister Rishi Sunak, who earlier hailed Deliveroo as a "true British tech success story," was forced to defend the company's stock market performance on Wednesday during an interview with broadcaster ITV.

"Share prices go up, share prices go down ... It's important businesses like that feel that they can stay in the UK to raise capital," he said.

That's likely to be of little consolation to the 70,000 retail investors who took part in the IPO — buying shares worth £50 million ($68.9 million). That's the biggest participation by small investors in a London listing in years, and the flop could deter them from taking part in future deals.

Hoberman is still optimistic about the outlook for tech company IPOs in London.

"This means that some of the frothier IPOs may get pulled but it won't affect high quality companies," he said. "And there's still another tech company on the [London Stock Exchange] worth over £5 billion ($6.9 billion)," he added.

That's Deliveroo, despite its dismal debut.

Newsletter

Related Articles

0:00
0:00
Close
Satirical Sketch Sparks Political Spouse Feud in South Korea
Indonesia Quarry Collapse Leaves Multiple Dead and Missing
South Korean Election Video Pulled Amid Misogyny Outcry
Asian Economies Shift Away from US Dollar Amid Trade Tensions
Netflix Investigates Allegations of On-Set Mistreatment in K-Drama Production
US Defence Chief Reaffirms Strong Ties with Singapore Amid Regional Tensions
Vietnam Faces Strategic Dilemma Over China's Mekong River Projects
Malaysia's First AI Preacher Sparks Debate on Islamic Principles
White House Press Secretary Criticizes Harvard Funding, Advocates for Vocational Training
France to Implement Nationwide Smoking Ban in Outdoor Spaces Frequented by Children
Meta and Anduril Collaborate on AI-Driven Military Augmented Reality Systems
Russia's Fossil Fuel Revenues Approach €900 Billion Since Ukraine Invasion
U.S. Justice Department Reduces American Bar Association's Role in Judicial Nominations
U.S. Department of Energy Unveils 'Doudna' Supercomputer to Advance AI Research
U.S. SEC Dismisses Lawsuit Against Binance Amid Regulatory Shift
Alcohol Industry Faces Increased Scrutiny Amid Health Concerns
Italy Faces Population Decline Amid Youth Emigration
U.S. Goods Imports Plunge Nearly 20% Amid Tariff Disruptions
OpenAI Faces Competition from Cheaper AI Rivals
Foreign Tax Provision in U.S. Budget Bill Alarms Investors
Trump Accuses China of Violating Trade Agreement
Gerry Adams Wins Libel Case Against BBC
Russia Accuses Serbia of Supplying Arms to Ukraine
EU Central Bank Pushes to Replace US Dollar with Euro as World’s Main Currency
Chinese Woman Dies After Being Forced to Visit Bank Despite Critical Illness
President Trump Grants Full Pardons to Reality TV Stars Todd and Julie Chrisley
Texas Enacts App Store Accountability Act Mandating Age Verification
U.S. Health Secretary Ends Select COVID-19 Vaccine Recommendations
Vatican Calls for Sustainable Tourism in 2025 Message
Trump Warns Putin Is 'Playing with Fire' Amid Escalating Ukraine Conflict
India and Pakistan Engage Trump-Linked Lobbyists to Influence U.S. Policy
U.S. Halts New Student Visa Interviews Amid Enhanced Security Measures
Trump Administration Cancels $100 Million in Federal Contracts with Harvard
SpaceX Starship Test Flight Ends in Failure, Mars Mission Timeline Uncertain
King Charles Affirms Canadian Sovereignty Amid U.S. Statehood Pressure
Trump Threatens 25% Tariff on iPhones Amid Dispute with Apple CEO
Putin's Helicopter Reportedly Targeted by Ukrainian Drones
Liverpool Car Ramming Incident Leaves Multiple Injured
Australia Faces Immigration Debate Following Labor Party Victory
Iranian Revolutionary Guard Founder Warns Against Trusting Regime in Nuclear Talks
Macron Dismisses Viral Video of Wife's Gesture as Playful Banter
Cleveland Clinic Study Questions Effectiveness of Recent Flu Vaccine
Netanyahu Accuses Starmer of Siding with Hamas
Junior Doctors Threaten Strike Over 4% Pay Offer
Labour MPs Urge Chancellor to Tax Wealthy Over Cutting Welfare
Publication of UK Child Poverty Strategy Delayed Until Autumn
France Detains UK Fishing Vessel Amid Post-Brexit Tensions
Calls Grow to Resume Syrian Asylum Claims in UK
Nigel Farage Pledges to Reinstate Winter Fuel Payments
Boris and Carrie Johnson Welcome Daughter Poppy
×