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Gig autonomy

25 March 2021 By Peter Thal Larsen

The letters “ESG” do not appear in the prospectus for Deliveroo’s initial public offering. The 224-page document is free of the statements of environmental, social and governance principles that clutter many large companies’ annual reports. The UK food delivery group also doesn’t trouble prospective investors with a statement of corporate purpose. Instead, founder Will Shu writes that his inspiration was simply “to get great food delivered from amazing London restaurants”.

This straightforward approach has not prevented Deliveroo from falling foul of the vogue for responsible investing. Aviva Investors and Aberdeen Standard Investments this week declared they would not be investing in the offering, which is set to value the eight-year-old company at between 7.6 billion pounds and 8.8 billion pounds. The asset managers pointed to Deliveroo’s drivers, whose self-employed status denies them the right to a minimum wage, sick pay or holidays.

This stance may not be based wholly on principle. At the end of last year Aviva had a small stake in Uber Technologies, according to Refinitiv, even though the ride-hailing firm recently lost a UK Supreme Court case over its treatment of drivers. However, Deliveroo’s reliance on casual “gig workers” is more than a social concern. It’s also a crucial part of its business model.

Despite a pandemic-induced boost to people ordering food at home, Deliveroo last year reported an operating loss of 221 million pounds. This included an 80 million pound charge for legal and regulatory claims, mostly related to an Italian investigation which may force the company to pay back-dated benefits to drivers. Though Deliveroo is fighting the case, it admits that similar investigations in other countries – combined with changes to labour laws – could have a “material impact” on its business.

Potential shareholders must also acknowledge a governance red flag flying over Shu’s super-voting shares, which hand voting control of the company to the 41-year-old chief executive despite an economic stake of just 6%. Above all, though, investors are being asked to pay up for a rapidly expanding but loss-making business. At the mid-point of the price range, Deliveroo’s post-IPO enterprise value will be more than 6 times last year’s revenue of 1.2 billion pounds. For fund managers still weighing its appeal, the biggest sustainability question is over Deliveroo’s financial viability.


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