Deliveroo IPO: UK firms discouraged from investing by rider working conditions and company’s recent losses

Legal & General Investment Management, the UK’s largest fund manager, has become the latest to say it plans to skip the initial public offering.

Deliveroo said earlier this week that it is targeting a valuation between £7.6 billion and £8.8 billion in the London Stock Exchange listing.

However, now GIM, Aberdeen Standard, Aviva Investors, BMO Global, CCLA, and M&G have also said they do not plan to invest in the takeaway delivery operator.

The fund managers said they were put off the opportunity due to factors including the working conditions of its riders and the company’s recent losses.

Deliveroo said it has “received very significant demand from institutions across the globe”.

‘Risky’ business model

In response, a company spokesman said: “The [IPO] 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.”

A number of the investors who said they will not buy shares have also raised concerns over the company’s proposed shareholder structure.

Deliveroo has said it plans a share structure which will mean that votes by its founder, Will Shu, will be worth 20 times more per share than other investors when the firm takes votes on major decisions.

The move will give Mr Shu, who founded the business in London in 2013, more than 50 per cent of shareholder voting rights.

L&G IM raised concerns over this “unequal voting structure”.

The fund manager said: “It is important to protect minority and end-investors against potential poor management behaviour that could lead to value destruction and avoidable investor loss.”

M&G’s head of corporate finance and stewardship, Rupert Krefting, raised concerns over its reliance on gig economy workers, saying this presented a risk to “the sustainability of its business model”.

On Thursday, the company faced further criticism over its worker practices as a study by the Bureau of Investigative Journalism and the IWGB union found that some workers were paid less on an hourly basis than the minimum wage.

On a mission to become ‘the definitive food company’

The takeaway company is aiming to sell shares for around 390p to 460p each, in what is expected to be one of the biggest public listings of the year. The company is yet to make a profit.

Susannah Streeter, an analyst at Hargreaves Lansdown, said: “This is towards the upper end of expectations given that in January an investment round, which saw the company gain a £129 million investment, put a value on the company of around £5 billion.”

The company will create new shares that it will sell to investors, raising about £1 billion in the process. Existing shareholders will also sell off some of their stake.

Chief executive Will Shu said: “We are proud to be listing in London, the city where Deliveroo started.

“Becoming a public company will enable us to continue to invest in innovation,” he added, “developing new tech tools to support restaurants and grocers, providing riders with more work, and extending choice for consumers, bringing them the food they love from more restaurants than ever before.

“This will help us in our mission to become the definitive food company.”