Deliveroo's London IPO fell 30% on day one, hitting customers who bought in

The Irish Times reported on April 1, 2021 that Deliveroo Holdings, founded and led by Will Shu, floated on the London Stock Exchange the previous Wednesday and sank as much as 30%, knocking about £2 billion off its market value. The IPO raised £1.5 billion. Customers who had been invited to buy shares through the app spent between £250 and £1,000 each, about £50 million in total, and were locked in until at least April 7.

Investors had warned. Legal & General, BMO Global Asset Management, Aviva Investors and Aberdeen Standard Investments said in recent weeks they would shun the deal over Deliveroo's treatment of workers. A Bureau of Investigative Journalism survey of thousands of invoices found a third of Deliveroo riders earned less than minimum wage, with the lowest paid earning about £2 an hour. Deliveroo disputes this and says pay averages £13 an hour.

A BMO portfolio manager called labour issues a 'ticking bomb' that made the company 'uninvestable.' The banks, led by JP Morgan and Goldman Sachs, priced the IPO at an initial value of £7.6 billion, 15% below the upper end of the range originally pitched to Shu. The paper said the banks had clearly failed to price the deal properly. UK chancellor Rishi Sunak had hailed the IPO as a British tech success story.

Big fund managers publicly said they would not buy because of ESG concerns over rider pay.

The banks priced the deal at £7.6 billion anyway, a figure that the market did not support on the first day.

The company invited its own customers to buy shares, so the loss fell on them as well as on professional investors.

Pricing an IPO at the top of a range while major investors have publicly declined over governance concerns invites a bad debut. Retail investors who buy in pay for it.

The shares slumped by as much as 30% on debut, and customers who bought in remained locked in until at least April 7. The Irish Times said the episode left egg on the faces of the banks.