Deliveroo shares lose roughly 30% on market debut

on Mar 31, 2021
  • Deliveroo shares lose roughly 30% compared to the IPO price on market debut.
  • The online food delivery company lost £2 billion off its valuation on Wednesday.
  • Deliveroo is now exchanging hands at close to 300 pence per share on the LSE.

Deliveroo Holdings plc (LON: ROO) shares posted a steep decline of roughly 30% compared to the IPO (Initial Public Offering) price as the food delivery company debuted on the London Stock Exchange on Wednesday.

The per-share price tag of 390 pence valued the company at £7.6 billion. On Wednesday, however, the stock plummeted to as low as 300 pence per share that resulted in a massive hit of over £2 billion to its valuation.

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Heavyweight investors opted out of Deliveroo’s IPO

Deliveroo had initially targeted a valuation of close to £8.5 billion. It, however, failed to hit the milestone as several UK fund managers refused to participate in its IPO on concerns related to its business model and the dual-class share structure.

A list of heavyweight investors that opted out of the IPO included Legal & General Investment Management, Aviva, Aberdeen Standard Life, and M&G. Deliveroo sold £1.5 billion worth of shares in its initial public offering. The gross proceeds of £1 billion, it added, will be used to fuel further growth.

A senior equity capital markets banker who preferred to remain anonymous commented on Deliveroo’s debut on Wednesday and warned that a more than £2 billion hit to valuation in a matter of minutes is likely to cast a broader impact on the IPO market not only in the United Kingdom but in Europe at large.

Deliveroo’s IPO was London’s largest since Glencore

The online food delivery firm saw robust demand last year as the ongoing Coronavirus pandemic pushed dine-in restaurants into temporarily shutting down and restricted people to their homes. The health emergency has so far infected more than 4.3 million people in the UK and caused over 126 thousand deaths.

Deliveroo’s IPO was London’s largest since Glencore that went public in May 2011. In the technology sector, it was the biggest float on the LSE ever. The dovish debut performance also threatens Britain’s finance minister Rishi Sunak’s goal of attracting tech firms to London.

Chief markets analyst Neil Wilson of commented on Deliveroo’s debut on Wednesday and said:

“It reflects the fact that even pricing the IPO at the bottom of the range, Deliveroo was demanding too high a price tag for a loss-making delivery platform in a very competitive space with a questionable path to profitability. The books were covered, it was just plain mis-priced.”

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