The takeover of Deliveroo by its US counterpart DoorDashis an illuminating example of the differing fortunes and attractions of US and UK stock markets. Deliveroo and DoorDash are similar companies. Both started out as food delivery services offering customers convenient and speedy access to their favourite restaurants and offering restaurants the ability to more fully utilise the capacity of their kitchens. Both extended their offerings to include other convenience shopping items – like nappies, flowers and pet food. Both raised money by selling shares to the public in an initial public offering (IPO) around the same time – Deliveroo on the London stock market, DoorDash on the New York Stock Exchange. Since then their fortunes have dramatically diverged. When Deliveroo listed its shares in London, DoorDash was worth five times as much as its UK counterpart. Four years later DoorDash is now worth 35 times as much. This is not a perfect comparison as DoorDash has issued more shares to raise money to expand over time which would boost its total value – its market capitalisation. But the appetite for shares in the US company meant that it could successfully raise that money on US markets. Let's look at another measure – the price of each share. An investor who bought a share of DoorDash has seen its value rise 84%. An investor who bought a share of Deliveroo has seen its value fall 56%. What this means is that DoorDash is now in a position to use its greater financial heft to take over its UK rival – just as Deliveroo is finally turning a profit. One of Deliveroo's first backers, Danny Rimer of Index Ventures, told the BBC in 2023 that if he had his time again he would have voted for a US listing, and people close to the company agree that the current takeover bid was partly enabled by DoorDash's access to US capital markets. This is just one example which helps explain a wider problem. Companies are increasingly shunning the London stock market in favour of a US listing. There are many reasons. Higher valuation. The 500 largest publicly traded US companies (S&P 500) are worth, on average, 28 times the profit they make in a year. The 100 largest publicly traded UK companies (the FTSE 100) sell for 12 times their yearly earnings. Less than half. How can there be such a huge disparity? Partly because the US is home to most of the world's most successful and profitable companies – the so-called Magnificent Seven (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) Take those out and shares trade at 20 times earnings – still a massive premium to the UK. One of the other reasons UK valuations lag is old-fashioned lack of demand. UK investors' appetite for UK stocks has shrivelled. Over the last 30 years, the share of the UK market owned by UK financial institutions has shrunk from 50% to less than 5%. This is partly because financial regulation has encouraged pension funds to buy less risky investments like government bonds. But it's also partly because the managers of those pension funds think they will get better returns investing in US markets – and they have been dead right. In just the last five years, the total return including dividends on investing in US shares has been 116% while the same number for the UK is 45%. But there are changes afoot. The government's so-called"Edinburgh Reforms", designed to make listing in the UK more attractive, included reducing the proportion of a company available for sale to the public and retaining more voting power for founders who wanted to keep control of the company even as they sold stakes to others. There have also been positive comments on the attractiveness of the UK from financial giants like Larry Fink of BlackRock and Jamie Dimon of JP Morgan. They both noted the UK looks undervalued and the UK market has outperformed the US so far this year. The secret that UK stocks are cheap has been out there for some time. That is precisely why private buyers from the US and elsewhere have swooped on UK-listed companies meaning they disappear from the UK stock market. Even some of the biggest ones left are considered candidates for a move. Shell boss Wael Sawan told the BBC that while he had "no immediate" plans to move, he and his company "got a very warm welcome" when they held their big reception for investors in New York. Shell trades at a 35% discount to its US-listed peers and many of its shareholders aren't happy about it. What the DoorDash swoop on Deliveroo seems to highlight once again is that companies listed in the US can summon greater financial firepower with which to expand or acquire their rivals. Deliveroo will join the likes of Arm Holdings, Morrisons, CRH Holdings, Ultra, Meggitt and many others as companies who used to be listed on the London Stock Exchange. Does it matter? Pension funds, or individual investors, can buy shares whether they are listed in the UK, US or one of the European exchanges. But a UK listing generates significant ancillary business for a UK financial services industry that still makes up more than 10% of the UK's entire economy and contributes more than 10% of all taxes paid here. Accountants, lawyers, financial PR firms and others feed off the fees that UK listings generate. Trading on the London Stock Exchange is dwarfed by the trading of currencies, bonds and complex contracts but it has always been a centre of gravity for financial activity and one which many argue has lost its power to attract.
Why Deliveroo's takeover by DoorDash shows UK still can't hang on to big firms
TruthLens AI Suggested Headline:
"Deliveroo's Acquisition by DoorDash Highlights Challenges for UK Stock Market"
Bbc News
7.4
TruthLens AI Summary
The recent acquisition of Deliveroo by DoorDash serves as a striking illustration of the contrasting dynamics between the US and UK stock markets. Both companies began as food delivery services, providing customers with quick access to their favorite restaurants while enabling restaurants to maximize kitchen capacity. They diversified their offerings to include convenience items such as diapers, flowers, and pet food. Deliveroo went public on the London Stock Exchange, while DoorDash listed on the New York Stock Exchange around the same time. However, their fortunes have diverged significantly since then. Initially, when Deliveroo listed, DoorDash was valued at five times more than Deliveroo. Four years later, DoorDash's valuation has skyrocketed to 35 times that of its UK rival. This difference can be partly attributed to DoorDash's ability to raise capital more effectively in the US market, allowing it to issue more shares to fund its expansion, ultimately leading to a greater market capitalization. In contrast, Deliveroo's share price has plummeted by 56% since its public offering, highlighting the stark contrast in investor sentiment between the two companies.
The broader implications of Deliveroo's takeover by DoorDash reflect a concerning trend for UK-listed firms, as many companies are increasingly opting for US listings over the London Stock Exchange. Factors contributing to this trend include significantly higher valuations in the US, where the top 500 publicly traded companies are valued at an average of 28 times their profits, compared to just 12 times for the largest UK companies. Additionally, the appetite for UK stocks has diminished, with UK financial institutions' ownership of the UK market shrinking from 50% to less than 5% over the past three decades. This shift is partly due to regulatory changes encouraging pension funds to invest in lower-risk assets, as well as a belief that US markets provide better returns, which has been validated in recent years. Although UK financial authorities are attempting to make the London market more attractive through reforms, the trend of US acquisitions of UK firms highlights the ongoing challenges faced by the UK stock market in retaining its top companies, which is detrimental to the financial services sector that relies on these listings for revenue and economic contribution.
TruthLens AI Analysis
The article presents a case study of the merger between Deliveroo and DoorDash, illustrating the stark differences in the performance of UK and US stock markets. It highlights how, despite being similar companies operating in the same sector, their trajectories diverged significantly after their respective IPOs. This situation raises questions about the attractiveness of the London stock market compared to its US counterpart and reflects broader economic implications for the UK.
Analysis of Market Dynamics
The stark difference in market capitalisation between DoorDash and Deliveroo underscores a critical point about investor sentiment and market confidence. DoorDash’s ability to raise capital effectively in the US allows it to expand and strengthen its market position, while Deliveroo's decline in share value indicates a lack of investor confidence. This disparity points towards a systemic issue within the UK market, suggesting that companies may prefer to list in the US where valuations and investor interest are more robust.
Implications for UK Firms
The news suggests that UK firms could face more challenges in attracting investment if this trend continues. The comments from Danny Rimer indicate a growing sentiment among investors that listing in the US may offer better prospects for growth and profitability. This could lead to a brain drain of innovative companies leaving the UK market, further exacerbating the challenges faced by the London Stock Exchange.
Public Sentiment and Perception
The article seems to aim at creating a perception of urgency regarding the state of the UK economy and its stock market. By highlighting the success of DoorDash in contrast to Deliveroo, it implies that the UK is losing its competitive edge. This narrative could resonate with stakeholders, including policymakers and investors, prompting discussions on how to revitalize the UK market.
Hidden Agendas
While the article primarily focuses on the market comparison, it might overlook deeper issues such as regulatory challenges, economic policy inefficiencies, or broader economic conditions affecting investor confidence in the UK. However, it does not explicitly address these factors, which might lead to a skewed perception of the situation.
Manipulative Aspects
The article employs a comparative analysis that could potentially manipulate public perception by emphasizing the negative aspects of the UK market while downplaying any positive elements. By focusing on the dramatic differences in valuation without a thorough examination of the underlying causes, it may inadvertently encourage a narrative of decline.
Trustworthiness of the News
The reliability of the article is supported by factual comparisons of market performance. However, the selective focus on certain metrics could give a misleading view of the overall health of the UK economy. It is essential to consider that while the data presented is accurate, the broader implications and potential biases in interpretation should be taken into account.
Potential Impact on Society and Economy
The narrative presented in the article could influence public discourse around economic policies and attract attention from investors and businesses considering their future in the UK. If the message resonates, it may lead to calls for reforms to make the UK market more attractive to tech companies and startups.
Target Audience
The article appears to be aimed at investors, business leaders, and policymakers who have a vested interest in the UK’s economic performance. By addressing the challenges faced by UK firms, it seeks to engage those who may influence future decisions about investment and economic policy.
Repercussions on Stock Markets
Given the focus on significant companies and their market performance, this news could have implications for stock prices, particularly for firms listed on the London Stock Exchange. Investors may re-evaluate their portfolios in light of the perceived advantages of US markets, which could lead to fluctuations in stock values.
Global Context
The article does touch on broader themes relevant to global economic dynamics, particularly the competitive landscape between the US and UK markets in the tech sector. This is a timely discussion, reflecting ongoing debates about the future of global investment and economic power distribution.
AI Influence in Writing
While there is no direct evidence that AI was used in crafting this article, the structured presentation of data and the analytical tone could suggest the influence of AI-assisted tools, aimed at enhancing clarity and persuasion. If AI were involved, it might have contributed to emphasizing certain comparisons and framing the narrative in a way that aligns with current market trends.
In conclusion, the article sheds light on significant economic concerns while also inviting scrutiny regarding its framing and potential biases. The insights it provides are valuable, but they must be contextualized within a broader economic discourse to fully understand their implications.