Deliveroo sets float price at £7.6 billion to £8.8 billion

Deliveroo could be valued at nearly £9 billion in its forthcoming stock market flotation - nearly £1 billion more than previously expected.

Having gauged the City’s appetite, the company today set the price range of its shares sale at a range of £7.6 billion-£8.8 billion in what will be the biggest UK technology IPO in years.

A total of 384 million shares will be sold at a value of between 390p and 460p each to City institutions, with shares also available to customers and some riders.

Some big investment institutions have baulked at the price for a business that made a £223.7 million losst last year, but the company clearly believes there is big demand for its stock.

Deliveroo, partly owned by Amazon, will raise about £1 billion in new funding from the float to invest in growing the company further.

It said it wanted to expand the market of online delivery of breakfasts and lunches, as well as evening meals. Currently, it said, only one in 21 such meals are ordered online.

The company said it had seen the total value of food sales going through its platform jump 121% year-on-year in January and February, with the UK and Ireland up 130% and other countries 112%. That marked an increase on the 64% seen in 2020 as a whole.

Today’s trading update also said its fourth quarter gross transaction value was running at more than £5 billion, while underlying gross profit margins have improved science 2018’s 5.8% to 8.8% in 2020.

Some analysts have questioned whether it will be able to sustain such strong growth in the UK after lockdown ends and people can return to eating in restaurants, but the pricing announced today suggests investors are less concerned.

Another bearish factor on the IPO raised in recent weeks has been the working conditions of Deliveroo’s riders.

Some in the City have said Deliveroo may come under pressure to make its riders “employees” with the benefits and national insurance payments that entails, but the company has refuted such suggestions.

A judgement against Uber in the Supreme Court led to it making its drivers employees, but Deliveroo said the ruling had no bearing on its business because its riders were free to refuse jobs or hand them on to other riders if they wanted.

Deliveroo has won two High Court cases on the issue so far but has received some negative publicity about employees struggling to make minimum wage at certain times of the day.

Founder and chief executive Will Shu said: “We are proud to be listing in London, the city where Deliveroo started. 

“Becoming a public company will enable us to continue to invest in innovation, developing new tech tools to support restaurants and grocers, providing riders with more work and extending choice for consumers, bringing them the food they love from more restaurants than ever before.”

He said: “We have seen a strong start to 2021 and we are only at the start of an exciting journey in a large, fast-growing online food delivery market, with a huge opportunity ahead."

The company has agreed not to sell further shares for 180 days after the flotation, while its directors have pledged not to sell for 365 days.

If the share price increases by 30% or more in the first 150 days, those lock-ups are relaxed for some pre-IPO shareholders.