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Why Deliveroo’s IPO might not be the nonsense it seemed

Deliveroo’s IPO was a flop. But it couldn’t be quite as bad a flop as everyone assumed.

If a company’s shares fall on the day it goes public, the markets will consider it a dud. The food delivery  -p has fallen by more than a quarter. This kind of decline grants him entry into the canon of all-time duff deals.

It’s next to the classic 2018, Aston Martin, and Funding Circle lists. These came at a time when UK equity markets were hesitant to revive, which had not quite got off the ground after Brexit. And they were branded so badly that they stopped the revival before it really started.

Deliveroo’s debut in March could have done the same. Moonpig Group and Dr. Martens had left the month before. But they had such annoying things as profits. Whether or not you want to call it a tech stock or just a pre-profit stock with an  -p, Deliveroo should be the test case for a new wave of listings in London.

Undoubtedly, it failed the test at the price set by its IPO bankers. Shares closed at or above this level on only two days in the seven months since it was listed. But since one of its bankers called Deliveroo “the worst IPO in London history,” it didn’t have the chilling effect it could have done.

The IPO market is now cooling down again. Hawksmoor steak joint has put plans on hold. PureGym is likely to join among others. However, in the roughly six months between Deliveroo’s initial public offering and the final closing of the IPO window, all sorts of companies have hit the market. Some, like the Oxford Nanopore genomics group, would have done well at any point. Others like online retailers Made.com and Victorian Plumbing were more opportunistic. It’s supply chain bottlenecks, rising inflation, and scared central banks that are ending the IPO party.

While Deliveroo’s first day was a disaster, it hasn’t fared too badly since then. For example, suppose his “real” float price was closer to 287p, where it closed on March 31, the day he started trading, rather than the IPO bankers’ 390p. They are now around 5 percent above this lower level.

Lock-up agreements and limited liquidity have slowed further price movements. Building holdings by German rival Delivery Hero helped prop the stocks up, as did a positive court ruling on the employment status of the company’s drivers.

But Deliveroo also updated one of its key sales metrics in its third quarter update in July and Wednesday. With the reopening of the economies, it has done better than expected. It has announced a collaboration with Amazon Prime and grocer Morrisons. In terms of the actions it requires investors to evaluate, it delivers.

There is still a lot to complain about with his business model. There is the question of paying drivers. The fact that it receives a technical rating for a technology that is not particularly complex. That no money is made outside of the UK. It has a penchant for matched numbers and fun metrics, although those things shouldn’t be a barrier to London debutante Darktrace investors.

There’s also the two-tier stock structure that gives CEO Will Shu oversized voting rights. Such arrangements were already difficult to get past London IPO investors. They have been cited as one of the key factors behind Deliveroo’s flop. Thanks to the recent price slump at THG, in which founder Matt Molding is supposed to give up his golden share, they have certainly fallen even further out of favor.

Governance will be a permanent barrier for some investors. The rest of you should remember that the first few days are not everything. When THG was listed as The Hut Group last September, it was celebrated as a triumph. London’s largest initial public offering in five years rose nearly a third on its debut. GHG stock has fallen 50 percent in the past six weeks amid doubts about the valuation of a key area of ​​the company. Few today would describe it as such a success.

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