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Deliveroo faces growing scrutiny over worker pay ahead of IPO

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When the skies darken over London, Joe brightens up. After two and a half years biking meals around the capital for Deliveroo, he knows that bad weather means better pay.

Joe — who asked that his surname not be used — said that “working life” means “you’re always looking at the weather”, because when it rains, customers are more likely to order takeaway and casual couriers are less likely to go out.

While Deliveroo touts flexibility as an advantage, for full-time couriers such as Joe, “you have to work when it’s busy”. That has become harder with Deliveroo’s casual workforce doubling over the past year, he said.

“Over-hiring is the critical issue for riders and our fees,” he said. “That has got way worse for us since the pandemic.”

The surge in food delivery since the start of the pandemic has thrown a spotlight on the employment practices of companies whose business model depends on having armies of workers at hand to meet fluctuating demand, with no obligations to guarantee their pay, hours or even their personal safety.

A study of rider earnings published on Thursday has found that on an hourly basis, a third of drivers in the UK were paid less than the minimum wage.

Deliveroo, which is targeting a market capitalisation of up to £8.8bn in this month’s initial public offering in London, is under increasing pressure to justify its model of using self-employed riders, following Uber’s decision to cede to a Supreme Court ruling and class its UK drivers — although not its food couriers — as workers with entitlement to the minimum wage and other benefits.

The road ahead

Deliveroo faces legal challenges in at least five of its main markets over the status of its riders. Last year, it almost quadrupled the provision it made for fines and other costs related to legal proceedings, to £112.2m. A large portion of that relates to Italy, where it is threatened with criminal prosecution and what its IPO prospectus calls potentially “material” fines, after the Italian government found Deliveroo should have engaged its riders on a “quasi-employee basis”.

The company has said it will continue to defend its position that riders are independent contractors, but highlighted to investors the risk that it might not succeed. If it were forced to change its model, it could incur “significant additional expense” or exit some markets.

David Cumming, head of UK equities at Aviva Investors, an asset manager that is part of the UK’s largest insurance group, told BBC Radio 4 on Wednesday that a “combination of investment risk and social issues” made him reluctant to invest in Deliveroo.

Meanwhile an equity investor at one large UK asset manager said they were “not very keen” on buying Deliveroo shares next week, in part because of the growing regulatory burden. “Given it’s such a low-margin business, the extra costs have the potential to destroy profitability.”

Tom Powdrill, head of stewardship at PIRC, a shareholder advisory group, said that for the growing number of investors prioritising environmental, social and governance (ESG) issues, Deliveroo “has question marks on both the S and the G”. Its dual-class share structure, which hands extra voting rights to chief executive Will Shu, only compounds the “central” question of working conditions, he said.

“If this [company] has a question mark over the employment issues, a governance structure that shields management from accountability to shareholders magnifies those concerns,” Powdrill said. Uber’s Supreme Court case demonstrates “how financially material these issues are”, he added.

Deliveroo’s prospectus maintains that in the UK, by far its largest market by sales, the “self-employed status of our riders has been confirmed in multiple court rulings”. But even since Deliveroo began its IPO process earlier this month, it has had to update its filings to warn prospective investors of new legal threats in Spain that could reclassify delivery workers as employees and force it to share details of its algorithms.

Pay is one of the biggest sources of contention. Deliveroo says its riders earn more than £10 an hour on average for the time they spend assigned to orders and an average of £13 in peak times. But an investigation led by the Bureau for Investigative Journalism, which analysed 2,669 invoices from 318 riders between April 2020 and March 2021 using a tool developed by the Independent Workers’ Union of Great Britain, suggests otherwise. It found that more than half of the riders earned less than Deliveroo claims. For every hour logged into the Deliveroo app, a third earned less than £8.72, the main adult rate of the national minimum wage.

Deliveroo hit out at what it called “unverifiable, misleading claims”, based on data gathered from less than 1 per cent of its UK riders. It said hourly rates are not a “meaningful reflection” of how riders are paid because they can accept jobs from multiple apps at the same time. Based on the time between accepting an order and dropping it off, Deliveroo said average earnings are more than the national minimum wage. Riders receive an average of £4-£5 per order, it added, and average delivery fees have risen year on year.

Each rider’s take-home pay depends not only on pay per order but also how many they can complete each day. Deliveroo doubled its overall number of riders to more than 100,000 over the past year, drawing on an expanding pool of people furloughed or fired from jobs elsewhere.

‘The better play’

For many of these new recruits, delivery work is a temporary stopgap and Deliveroo’s offer good enough to tide them over. Alexia, a furloughed bar manager waiting for an order in a north London branch of Pizza Hut, said she made just a couple of trips a week, close to her home, using time in which she would choose to be out on her bike in any case.

But with more people competing for orders, experienced riders say it is becoming increasingly difficult to make a living by doing the job full-time.

After what he called the pandemic’s “hiring spree”, Jack Kellythorn, a rider in Basildon, felt that Deliveroo now offered lower fares than in the past for similar journeys. A change to how Deliveroo calculates fees last year increased pay for longer-range deliveries but left riders feeling short changed for quicker trips. He has stopped riding full-time and now uses Deliveroo only to top up his wage from a new job as a traffic warden — a role in which he has to police his fellow riders.

Deliveroo says that while on average 16,000 people applied to ride in the UK every week between September and December last year, it has frozen recruitment in some areas where consumer demand is not high enough to meet increased rider supply.

Unlike Uber, Deliveroo does not provide its riders with a full breakdown of their fees, making it hard to tell how it has changed its payment scheme over time. Riders say all the delivery apps have pros and cons. But one common gripe with Deliveroo is that it offers a fixed fare when riders accept an order, with no adjustment if they are held up at a restaurant — which frequently happens — or by traffic delays.

Some investors argue that upending the gig economy employment model is in the long-term business interests of Deliveroo and its rivals. Bradley Tusk, a venture capitalist and former Uber investor who advised on its regulatory strategy, believes that employing riders “may actually be the better play”. That way, they could be prevented from working for rivals and avoid the costly competition to recruiting new workers, he suggested.

“I sold all my Uber shares as soon as I could and I personally will not invest in Deliveroo when it goes public,” Tusk said. “I would reconsider all that if I thought they had a way to lock in the dominant position in the marketplace.”

Additional reporting by Attracta Mooney



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Paper producer Segezha plans Moscow IPO

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Paper producer Segezha is planning an initial public offering on the Moscow exchange, making it the latest in a series of Russian companies looking to tap surging investor demand.

Segezha, which is owned by oligarch Vladimir Yevtushenkov’s Sistema conglomerate, said on Monday that it wanted to raise at least Rbs30bn ($388m) in the IPO. It is seeking a valuation of more than $1.5bn, according to a person familiar with the plans.

The structure of the offering will allow Sistema to retain control of the company.

Russian companies are rushing to go public in response to high demand for emerging market assets and in case geopolitical tensions with the west make it harder to list.

The stimulus-fuelled global stock market boom and a rebound in commodity prices have helped Russia’s market recover quickly from the pandemic.

The Moscow exchange’s benchmark index hit record highs in March and Russian central bank rates remain near an all-time low. Last year, the bourse doubled its number of retail investors to 10m as homebound traders moved away from bank deposits.

In March, discount retailer Fix Price held the largest Russian IPO since the US and EU imposed sanctions against Moscow in 2014. Ecommerce site Ozon, which is co-owned by Sistema, has more than doubled its valuation to about $12.5bn after going public in New York last year.

But the sell-off of the rouble on tensions with the US and the military build-up on the Ukrainian border has underlined that going public remains precarious.

GV Gold, a midsized goldminer whose key shareholders include BlackRock, said late last month it would postpone its IPO — the third time the company has announced a listing then backtracked — because of “elevated levels of market volatility in both the global and Russian capital markets”.

Segezha, which reported nearly $1bn of revenue last year and operating profit of $242m, is the fifth-largest producer of birch plywood in the world and is in the top two for production of heavy duty “multiwall” paper packaging.

Prices for its products have rebounded during the recent economic recovery, while 72 per cent of its revenue comes from export sales in foreign currencies — allowing it to take advantage of the weak rouble at its mostly Russian cost base.

“Bringing Segezha Group to the public markets will crystallize the value of our investment, raise funds that would allow Segezha Group to continue to pursue its investment projects and provide investors with the opportunity to share in the company’s strong growth and benefit from attractive returns,” Sistema chief executive Vladimir Chirakhov said in a statement.

JPMorgan, UBS, and VTB Capital are joint global co-ordinators and joint bookrunners on the IPO. Alfa Capital Markets, Gazprombank, BofA Securities, and Renaissance Capital are joint bookrunners.



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Spac boom under threat as deal funding dries up

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A crucial source of funding for blank-cheque company deals is drying up, pointing to a slowdown for one of Wall Street’s hottest products after a record-breaking quarter. 

Advisers to special purpose acquisition companies, which float on the stock market and then go hunting for a company to buy, say they are struggling to find so-called Pipe financing to complete their planned acquisitions. Pipe is short for private investment in public equity.

Institutional investors such as Fidelity and Wellington Management have ploughed billions of dollars into Pipe deals since the Spac boom emerged last year, providing a route to the public markets for businesses ranging from established software and entertainment companies to speculative developers of flying taxis and electric vehicle technology. 

But people involved in arranging the deals say Pipe investors are overwhelmed by the sheer volume of transactions and put off by rising valuations. 

“There is a lot of indigestion,” said one senior bank executive. “The pendulum has swung to where if you’re in the market with a Pipe right now, it’s going to be really hard and painful. A Spac goes back into the ocean if you can’t get a Pipe done.”

Spacs raise money when they first list on the stock market but they typically require more capital to fund their acquisition. Large institutional investors also act as a form of validation of the target company’s business prospects and its valuation.

There have been 117 deals announced this year, but the growing backlog in Pipes could prove to be a big roadblock for the 497 blank-cheque companies that are still looking for a deal, according to Refinitiv data.

Only about 25 per cent of Spacs listed since 2019 have completed deals so far. Sponsors typically have two years to complete a merger, otherwise they have to return the capital they raised to investors.

Several market participants said the slowdown would lead to a “flight to quality” and put downward pressure on the valuations of acquisition targets, which have skyrocketed in recent months.

Almost all of the executives the Financial Times interviewed said they were seeing Spac deals recut to offer more favourable terms to Pipe investors. One said: “It’s called the buy side for a reason.” 

Because Pipe investments are considered illiquid — the money is tied up at least until the deal closes and there may be a lock-up period after that — investors can usually get favourable terms. They can see the deal before it has been announced to the public and are almost always able to buy in at the Spac listing price of $10.

But earlier this year, Pipe investors were clamouring to get in on Spac deals. The group of institutions that backed Churchill Capital IV’s acquisition of electric carmaker Lucid paid a 50 per cent premium to the Spac listing price to get a stake, almost unheard of at the time.

The recent reversal has Pipe investors negotiating lower valuations for businesses, giving them larger stakes for the same amount of money, and better pricing terms.

“There’s only so much illiquid exposure investors are going to want to take,” said another bank executive who has worked on numerous Spac deals.

The Pipe slowdown is bad news for banks, which are unable to collect on advisory fees if they cannot sell a deal to investors.

It is also starting to affect the pipeline of Spac launches, lawyers and bankers said. In the first seven days of this month, only four blank cheque companies have gone public. That compares with 41 during the first week of March and 28 in February, Refinitiv data shows. 

“Where we had been at a crazy, mad, rush pace in January and February, we’re kind of at a standstill right now on the IPO side,” said Ari Edelman, partner in Reed Smith’s corporate practice.

For those that already went public and are looking for a target, he added, “the hope is this is just a bump in the road. And then ultimately the deal gets done.”



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UK-backed vaccine maker warns of export restrictions in IPO filing

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Valneva, the French Covid-19 vaccine maker backed by the UK government, has filed for a US initial public offering seeking to take advantage of investor appetite for biotechnology during the pandemic. 

The Paris-listed company, with a market cap of more than €1bn, filed to raise $100m in American Depositary Shares, the day after Vaccitech, the Oxford spinout that owns the platform behind the AstraZeneca vaccine, published its filing

Valneva has a deal worth up to €1.4bn to supply Covid-19 vaccines to the UK, manufacturing the doses in a Scottish factory expanded with government funds. The UK has already agreed to buy 100m shots and has an option to purchase 90m more by 2025. Valneva has already received almost £100m from the government. 

But in its filing, Valneva warned that any restrictions on importing or exporting vaccines out of the EU could have a “substantial” risk to its operation. The vaccine is due to be manufactured in the UK but put into vials and packaged in the EU, it said. 

Shortfalls in supply of vaccines to the EU have led to tensions between the UK and the EU over importing shots and raw materials for the current approved jabs from Oxford/AstraZeneca and BioNTech/Pfizer.

Valneva’s filing comes after it announced positive early stage trial results for its Covid-19 earlier this week, planning to launch a later stage study this month and apply for a UK approval in the autumn.

The phase 1 and 2 study showed the shot elicited more antibodies in the participants receiving the highest dose than are usually seen in recovered Covid-19 patients, with over 90 per cent producing significant levels of antibodies. The jab also induced a response from another key part of the immune system, the T-cells. 

The vaccine, which uses a whole inactivated virus, a more traditional approach than the currently approved shots, could be used as a booster for the vaccinated or to tackle variants of the virus.

Valneva said even though it would be approved much later, it could have a competitive advantage against its rivals. 

“We believe that, if approved, our vaccine, as an inactivated virus vaccine, could offer benefits in terms of safety, cost, ease of manufacture and distribution compared to currently approved vaccines and could be adapted to offer protection against mutations of the virus,” it said in the filing. 

But it also said that it did not yet have the rights to use the strain of virus in the vaccine on the commercial market. It is in the process of negotiating a commercial agreement with the World Health Organisation and the Italian National Institute for Infectious Diseases. 

Valneva is also developing vaccines for Lyme Disease and chikungunya, a virus transmitted by mosquitoes. Total revenue was €110m in 2020, down from €126m in 2019, as sales of its travel vaccines were hit by restrictions on travel during the pandemic. 

It made a loss of €0.71 per share last year, after it had to make a €7.4m writedown, partly because of the limited shelf life of the products. Valneva also had to renegotiate a debt financing agreement last year as it was at risk of not meeting the minimum revenue covenant.



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