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Deliveroo trims valuation amid City revolt over IPO

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Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·3-min read
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Watch: Deliveroo trims valuation amid city revolt over IPO

Deliveroo has cut its potential valuation in its hotly anticipated upcoming stock market float, following a revolt from the City of London over the company's treatment of drivers.

Deliveroo said on Monday it would price shares in its initial public offering below the top end of its range, knocking up to £1bn ($1.4bn) off the potential value of the company.

Deliveroo is set to announce the final pricing of its hotly anticipated IPO on Tuesday. The food delivery startup previously set a range of £3.90 to £4.90, valuing the business at between £7.6bn and £8.8bn.

The loss-making startup said on Monday it was narrowing its share price range to between £3.90 and £4.10, citing "volatile" market conditions. The new range gives the company a market cap range of between £7.6bn and £7.85bn.

"Given volatile global market conditions for IPOs, Deliveroo is choosing to price responsibly within the initial range and at an entry point that maximises long-term value for our new institutional and retail investors," a spokesperson said.

The decision to lower its potential valuation comes amid a revolt among institutional investors over the company's treatment of drivers. Several of the City of London's biggest money managers — including Aviva (AV.L), Aberdeen Standard Life (SLA.L), L&G (LGEN.L), and M&G (MNG.L) — have publicly said they will not take part in Deliveroo's IPO.

ROME, ITALY - 2021/03/26: Delivery men from Deliveroo seen during the demonstration.
Delivery riders protest in a No delivery day Rider demonstration at Piazza San Silvestro Rome asking for real contracts with better protection, concrete guarantees, fairness and respect for their work with adequate remuneration. (Photo by Fabrizio Corradetti/SOPA Images/LightRocket via Getty Images)
Deliveroo delivery riders protest in a No delivery day Rider demonstration at Piazza San Silvestro Rome asking for real contracts with better protection, concrete guarantees, fairness and respect for their work with adequate remuneration. Photo: Fabrizio Corradetti/SOPA Images/LightRocket via Getty Images

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"It's likely initial orders for the IPO have come in nearer the bottom of the target range, and by setting its sights nearer those prices, it is managing expectations on its ride to listed status," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

Money managers have cited concerns over Deliveroo's treatment of drivers. Deliveroo's platform allows anyone to sign up as a rider to deliver food for restaurants. Analysis published last week by the Bureau for Investigative Journalism claimed that riders can earn as little as £2 an hour on the platform, which is well below minimum wage. Deliveroo disclosed in its IPO documents that it is facing legal claims or regulatory probes across much of Europe over the classification of its riders.

Deliveroo downplayed the importance of the recent investor revolt in the narrowing of the price range.

"Deliveroo has received very significant demand from institutions across the globe," a spokesperson said. "The deal is covered multiple times throughout the range, led by three highly respected anchor investors."

The decision to cut the valuation comes as recent tech IPOs in both the US and Europe have faced headwinds. Several US floats priced last week were below their initial offer prices and Trustpilot (TRST.L), one of the UK's highest profile floats this year, sank below its IPO price on the second day of dealing.

"It may be blaming volatile market conditions for the move, but the rejection of the IPO by a slew of institutional investors is likely to also have caused some concern at the delivery company," Streeter said.

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