Shares of Deliveroo fell 30% when the company debuted in London on Wednesday, a blow to ambitions to attract more UK tech companies to list in the UK.
Shares fell as low as 271p in the first 20 minutes of trading, according to data from Refinitiv. By 8:45 a.m., the share price had fallen to 313 pence.
The company had set its opening share price on Tuesday at the lower end of its target range of 390p, citing volatile market conditions and following the reaction of some large UK investors on corporate governance.
The initial public offering had given Deliveroo an opening valuation of around £ 7.6 billion, the highest in London since resource group Glencore’s IPO in 2011, according to Dealogic data.
But the food delivery app quickly lost over £ 2 billion in market value in its first moments as a state-owned enterprise, in one of the steepest drops for a major new announcement in years .
As late as Tuesday, Deliveroo had insisted that it had seen “very significant demand” from investors and that the transaction had been hedged “several times”, even though it had gone to lower your price range earlier this week.
Deliveroo has sold shares worth £ 1.5bn in the offering, generating gross proceeds of around £ 1bn for the company to invest in new growth initiatives such as its network of Editions delivery kitchens, while existing investors will cash in to the tune of £ 500million.
Still, retail investors, who received £ 50million of shares in the IPO which was marketed in the Deliveroo app, will not be able to trade until next Wednesday, when unconditional trading begins.
At a time when other European companies sought to go public in New York or Amsterdam, the IPO of Deliveroo was seen as a test for a Silicon Valley-style tech company in London. While online retailer The Hut Group has posted solid gains since The September IPO raised £ 1.9bn, Internet rating service Trustpilot has struggled to gain momentum after its debut last week.
Deliveroo, founded in 2013, lost £ 224m last year, but revenues jumped 54% as takeout orders were accelerated by pandemic lockdowns in Europe.
“I am very proud that Deliveroo is going public in London – our home,” said Managing Director Will Shu. “Our goal is to create the definitive online food company and we are very excited about the future to come.”
Shu holds inordinate voting power in the stock thanks to a two-class share structure, common among Silicon Valley companies such as Google and Facebook, but rare among UK lists. The arrangement will prevent Deliveroo from entering the FTSE 100 for now, but Rishi Sunak, the UK Chancellor, has proposed reforms that would allow companies with two-class shares to enter the premium segment.
Investors in several large UK asset managers, including the fund management arms of Legal & General, Aviva and Aberdeen Standard, decided not to participate in the IPO, citing a combination of regulatory risks and corporate governance issues, especially the two-class structure.
Amazon, Deliveroo’s biggest investor, sold shares worth around £ 91million in the IPO, while Shu also took in around £ 26million.
Early investors Index Ventures, DST Global, Accel, Greenoaks, Bridgepoint and General Catalyst sold about 10 percent of their shares in the IPO. Two of Deliveroo’s largest private funders, T Rowe Price and Fidelity, have chosen not to sell yet.
Deliveroo’s pre-IPO investors are now barred from selling other shares for up to 180 days under lock-in rules.
Goldman Sachs and JPMorgan are the joint global coordinators of Deliveroo, while Bank of America, Citigroup, Jefferies and Numis have acted as bookkeepers.
