More Institutional Investors Shun Deliveroo IPO

Legal & General Investment Management, the UK’s biggest fund manager, has added its voice to criticism of Deliveroo‘s upcoming IPO and said it would not participate in the offering.

L&G, which oversees £1.3 trillion of pension and investment funds around the world, joined M&G, with £387bn, which also said it would shun the offering.

Both criticised Deliveroo over concerns around the company’s unusual share structure and its position on workers’ rights.

Aviva Investors, which manages £365bn, and Aberdeen standard, with £460bn, as well as other major funds such as BMO GLobal and CCLA have also voiced opposition to the flotation, which is set for this Wednesday.

Share structure

L&G’s criticisms centred on Deliveroo’s plans for a dual-class share structure that would give founder Will Shu control over voting rights.

The fund manager said it was “unlikely” to participate in the IPO due to its concerns that the structure could lead to “potential poor management behaviour”.

The company also said it would push against proposed reforms that would allow City companies with dual-class structures to be listed on premium indices such as the FTSE 100.

“It is important to protect minority and end-investors against potential poor management behaviour, that could lead to value destruction and avoidable investor loss,” L&G said.

Workers’ rights

M&G focused on Deliveroo’s reliance on delivery riders who are treated as self-employed workers, rather than employees.

The company noted that Uber was recently forced by a UK court decision to reclass its drivers as employees, while key Deliveroo competitor Just Eat has begun offering riders some employee benefits.

Such risks may make Deliveroo’s business model unsustainable, M&G said.

“Deliveroo’s narrow profit margins could be at risk if it is required to change its rider benefits to catch up with peers, in an industry that is already facing severe competitive pressure between the large tech platforms,” the firm said.

Delivery companies such as Deliveroo may also be at risk if demand drops following the pandemic.

Sustainability

Deliveroo reported a £224m loss for 2020 in spite of order volumes growing by nearly two-thirds due to coronavirus lockdowns.

But other large institutional investors such as Fidelity and T Rowe Price are backing the IPO and Deliveroo said investor demand has been strong.

“Deliveroo has received very significant demand from institutions across the globe,” the company said.

The firm is targeting a valuation of up to £8.8bn for the offering, which is expected to be the biggest in the City for a decade.