If one didn’t know Deliveroo’s stock market history, a take-out price of £2.7bn for a barely profitable food delivery app would seem a decent piece of business from the seller’s point of view. The qualification, of course, is thatthe likely 180p-a-share offer from DoorDash of the USstacks up poorly against the 390p at which Deliveroo listed in 2021.
The moral of the numbers, though, is surely only that the flotation, or IPO market in early 2021 was infected by Covid-19 silliness. Almost everything was listed at over-inflated prices in a weird period when fund managers seemed to have lost the ability to say no to smooth-talking investment bank promoters.
Deliveroo’s“floperoo”, as the debut was dubbed, has turned out better, relatively speaking, than those of Made.com, whichentered administrationlittle more than a year after its £775m arrival, and Dr Martens, whichhas issued five profit warningsand is currently 85% below its £3.7bn listing price. Or, from late-2020, THG, the online beauty and protein shakes group, is even further adrift of its starting price.
So, given that the old yardsticks are useless, the questions forDeliverootoday are, first, whether it makes sense to sell now and, if it does, whether it can whip up a competitive auction.
On timing, there’s a fair argument that yes, this is the moment to do a deal. A consolidation game among food apps has gone global and Deliveroo is clearly destined for the role of prey rather than predator. It is far smaller than the likes of South African-owned Prosus (acquirer of Just Eat) or Meituan, out of China, or DoorDash.
The danger in trying to stick to the independent life is that you eventually get out-muscled by rivals with deeper pockets. Deliveroo is number one in the UK and number two in France. Those are valuable positions but also hard to improve upon. If they are worth more to a buyer, it is rational to talk terms.
As for the chances of a bidding war, it feels unlikely. In the shareholders’ dreams, Amazon, a 13% owner of Deliveroo, would emerge as saviour and blow DoorDash out of the water. The script is not impossible, but also far from straightforward when you remember that the Competition and Markets Authority spluttered over Amazon’s initial stake-building. Even in its new government-approved “pro-growth” guise, the watchdog might demand an inquiry into Amazonian overreach in home delivery.
By contrast, an exit for cash via DoorDash has the virtue of simplicity. The US firm, which doesn’t currently operate in the UK, is the obvious fit in the global jostling.
None of which would make 180p feel like a bonanza for anyone who bought at 390p and held. But the price would be the highest the shares have seen since early 2022, when it was already obvious we weren’t all going to stay at home and eat takeaways twice a day. The likes of Deliveroo have developed a sideline delivering orders for supermarkets and others, but that is also a competitive field.
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The point about the delivery business is that profits simply haven’t appeared at anything like the rate fantasised about in 2021. Getting out a 40%-ish premium to the average share price over the last three months is not a bad outcome in shrunken circumstances. Will Shu, Deliveroo’s founder, would emerge with £172m for his 5.9% stake. He has every incentive to judge when it’s time to cash up.