Deliveroo’s London IPO is about making friends

It would have been a blow to London if the UK’s most prominent unicorn decided to list its shares in tech-friendly New York or Amsterdam. Instead, Deliveroo has picked its home stock exchange for an initial public offering.
Valued at more than $7 billion in its most recent private funding round, the food delivery app is issuing a vote of confidence in plans to reinvigorate London as a friendly home for tech IPOs. But the decision brings a major side benefit: Deliveroo will get political goodwill that could prove useful as it confronts more stringent regulation of the gig economy in its biggest market.
The timing of the announcement is no accident. Chancellor of the Exchequer Rishi Sunak said he would act quickly on new listing rules proposed by Jonathan Hill, the former financial services commissioner for the European Union. Hill’s suggestions would ease the way for London to attract special-purpose acquisitions vehicles, or SPACs, and allow dual classes of shares that carry different voting rights to list in premium indexes like the FTSE 100. By permitting dual-class stock for the first five years after a listing, founders can retain control of their firms for longer.
The change would bring London more in line with New York and Amsterdam, markets that have in recent years attracted the listings of prominent European startups such as Prosus NV, Spotify Technology SA and Farfetch Ltd. European-domiciled companies have sold a cumulative $33 billion of stock in New York IPOs since 2010, with British companies alone accounting for $13 billion. And that excludes the 2018 direct listing of Spotify, the music streaming giant that is now valued at $57 billion. Deliveroo’s listing might attract more high-flying tech companies to go public in London.
The benchmark FTSE 100 Index has already suffered this year from the fact that e-commerce specialist THG Plc., which has outperformed the market, was deprived of a premium listing at its London IPO because of its dual-class voting structure. Deliveroo, which will also have two classes of shares, might still list before the new rules are approved, though both it and THG could reasonably expect to join the FTSE 100 once the rules are in place.
Deliveroo’s decision also arrives in the context of a significant February ruling on the gig economy from the UK Supreme Court. The judgment determined that Deliveroo competitor Uber Technologies Inc must treat its drivers as “workers,” giving them access to holiday pay, rest breaks and the minimum wage. While the ruling only directly applies to drivers in that particular case, it opens the doors for other gig workers to seek similar protections that would increase these companies’ costs. It’s heightened the need for appropriate regulation.
However, the same UK lawmakers who would piece together such rules might now also have a vested interest in ensuring that Deliveroo’s listing proves a success.
—Bloomberg