Goldman Sachs propped up Deliveroo IPO with £75m investment
Goldman Sachs pumped tens of millions of pounds into Deliveroo shares in order to prop up trading of the takeaway app, after investors shunned its market debut.
The investment bank bought around £75m of Deliveroo shares – equivalent to a quarter of stock traded in the first two days after the London listing – the Financial Times revealed.
Deliveroo shares slumped 30 per cent on its disastrous debut to the London Stock Exchange, with concerns over working conditions for its riders being cited as one of the reasons investors gave Deliveroo the cold shoulder.
According to the FT, the move should have banked a profit for Goldman when used in combination with the ‘overallotment’ reserved for stabilising the IPO.
However, the profits will be surrendered to Deliveroo as part of an agreement between the two companies, which was not disclosed in the company’s IPO.
Goldman Sachs declined to comment. Deliveroo was not immediately available for a response.
Time to cash out?
Tomorrow marks the first day retail investors can cash out of their investment – albeit at around 28 per cent below the IPO price.
Under the terms of the offer, institutional investors were able to trade when conditional trading began on 31 March.
But customers who participated under the community offer have been paralysed.
According to Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, customers’ inability to cut their losses and sell could encourage a greater flight from the shares when customer investors are finally able to make a move tomorrow.
“Although opening up IPOs to more than institutional investors is welcome, a regular retail offering usually offers a better solution, allowing retail investors to begin trading from day one, via in their stocks and shares accounts,” she said.
“In such scenarios, the only investors who would have been locked out, would be those trading via SIPP and ISA accounts due to the rules of conditional trading.”
Streeter said more accurate pricing was also crucial to maintaining retail investors’ enthusiasm for IPOs going forward.
“The offering, at £3.90 a share, gave Deliveroo a valuation of around £7.6bn, sharply above its valuation of around £5bn in January following an investment round, yet there had been no fundamental improvements to its prospects,” she continued.
“Instead the floatation came at a time of increasing concerns surrounding its gig economy model and the expectation that the easing of Covid restrictions could lead to an initial downturn in business.”