A friend has received an email from Deliveroo. It’s a bit different to the usual offers of free pudding on Valentine’s Day, the PR stunts around Bake Off, the Mother’s Day credits or suggestions that we all learn to love Wagamama’s hirata buns. His message tells him “Deliveroo is considering becoming a publicly listed company” and expects “to make up to £50m of shares available to our customers”. He can click on a special link that takes him through to a firm called Primary Bid and he will find himself on a priority list for an allocation of the food delivery firm’s shares.
I’m a little cross that I haven’t had one of these emails – my family are enthusiastic Deliveroo users and I like being on VIP lists (any kind will do). But I am also a little thrilled. One of the maddening things about the recent boom in both IPOs and secondary offerings in the UK over the past year has been the way that ordinary investors have been excluded – we weren’t allowed to participate in the recent listings of Moonpig or Dr Martens, for example.
And that is not a new thing. In the three years to October 2020, say the chief executives of the UK’s biggest retail investment platforms (who have written to the City minister to complain), ordinary investors were excluded from more than 90% of new listings.
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This seems a shame, to say nothing of a tad unfair. Research from Interactive Investor suggests the average share price of a new entrant to the Aim market since the end of 2018 popped 12% by the end of the first day of trading. It would be nice if we were all offered a piece of that success.
If you’re thinking of buying in, do be careful
Deliveroo’s offer to retail investors is far from perfect. Fifty million pounds is small beer in the context of the £1bn the firm hopes to raise in the IPO – and even if you are on the special list you can only apply for a maximum of £1,000 worth.
There’s also good reason to be wary of buying any at all. January saw the best month for IPOs on record globally. I’m pleased about that (more listed companies is a good thing). But you can also have too much of a good thing: floods of listings tend to come towards the end of bull markets, when punters are a little too free with their cash and investment banks are a little too keen to flog them stuff they might not so easily get away with offering in more testing times.
Deliveroo operates in a fickle, very competitive market – jammed full of alternative and just as easy to find food methods as the one it offers. I cook; I use Uber Eats and Just Eat; I occasionally walk to an actual restaurant and collect supper. And I have some residual hope – which I try to suppress on the basis that regular disappointment is not good for one’s health – that I will soon sit down in a place of my choosing away from my own home to eat. Maybe even inside.
We also have no firm idea how the company will be priced. Its owners and bankers will definitely be hoping that the market will be prepared to value it as a tech business rather than a delivery outfit.
That makes some sense. It doesn’t employ the 100,000 riders it works with; it doesn’t own any restaurants or bikes – just the technology platform that puts them together and an awful lot of customer data. That is clearly valuable stuff, but it would still be nice to see a few more companies come to market with more than data woo woo to offer. Profits, even: Deliveroo made an operating profit in some months of last year, but nonetheless reported an overall loss in 2020 – a year in which we were all mostly locked in our houses ordering food online.
That was also before Uber this week agreed to implement a key Supreme Court ruling and treat its drivers more like employees – almost certainly driving up labour costs in the gig economy.
Finally, new investors might be a bit nervous of Deliveroo’s planned dual-class share structure. There will be A shares and B shares: each B share will come with 20 votes; each A share will come with one vote. Deliveroo founder Will Shu will get the B shares; you will get the A shares – obviously. I don’t much mind this – the Bs turn into As after a few years anyway, but you might.
Shareholders need to be engaged with the companies they own
Whether you end up buying or not (I will be nicking my friend’s link to sign up on the basis that I spent £100 on Deliveroo-facilitated pizza last week so am surely eligible), the key point is that this is going to be one of the biggest IPOs in the UK for a long time. And you have been given the option.
Shareholder democracy has been in retreat for years. That matters – the more we are all invested in companies we understand and are rooting for, the better capitalism should work. Well-known brands letting us into their IPOs is a good step forward. The next one is something I reckon Deliveroo could also help with.
For shareholder capitalism to work, we need to be properly engaged with the companies we own. That means voting – something most of us can’t be bothered to do because of the admin and so simply don’t do. And now we hold most of our shares on platforms, it isn’t that straightforward.
Perks might help. In the past, listed companies offered shareholders fun stuff – discounts, vouchers, the odd free gift – just for holding shares. Some still do. Deliveroo could do the same but go one further: encouraging shareholder democracy by offering perks for participation.
How about a doughnut voucher for every 100 shares voted, perhaps? That should be enough to get shareholders who use platforms to start demanding that they figure out a simple route to them getting full shareholder rights. What’s in it for Deliveroo? No immediate threat to the founder’s plans (remember the B shares). But over the longer term, the company gets a group of investors genuinely interested in their business and perhaps having the “emotional connection” to their brand that the IPO blurb says they want. Plus even more free PR than the £50m offer is already getting them.
You might say Krispy Kreme kickbacks aren’t the right way to deepen shareholder democracy. I’d say it doesn’t matter how we do it. Incentives work. Send the doughnuts.
• This article was first published in the Financial Times
Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
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