Why the Deliveroo Deal Highlights the UK’s Struggle to Retain Major Companies

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The potential takeover of Deliveroo by DoorDash shows how differently the U.S. and U.K. stock markets perform. DoorDash has offered £2.9 billion for Deliveroo, which would create a company operating in over 40 countries.

Both companies began as food delivery services, helping customers access their favorite restaurants quickly. They also expanded their services to include other items like groceries and household supplies. They both went public around the same time—Deliveroo in London and DoorDash in New York.

However, the comparison isn’t balanced. When Deliveroo launched, DoorDash was worth five times more. Today, that number has jumped to 35 times more. One key factor is the difference in how many shares each company has issued to raise funds. U.S. investors showed strong interest in DoorDash, allowing it to raise substantial capital.

Consider this: an investment in DoorDash has gained 84% in value, while Deliveroo’s shares have dropped by 56%. This wider gap gives DoorDash the financial muscle to take over Deliveroo, even as Deliveroo turns a profit for the first time.

Danny Rimer, an early supporter of Deliveroo, voiced regret about not opting for a U.S. listing. This sentiment resonates with many in the industry, highlighting the appeal of U.S. markets for investors.

The trend of U.K. companies avoiding the London Stock Exchange is growing. Some reasons include:

1. Higher Valuations: The average value of large U.S. companies is 28 times their earnings. In contrast, U.K. companies trade for only 12 times their earnings.

2. Successful Companies in the U.S.: Leaders like Apple and Microsoft have set high standards, attracting more investment.

3. Declining Domestic Demand: The share of U.K. stocks owned by local financial institutions has plummeted from 50% to under 5% in the last three decades. Pension funds now prefer less risky investments, often in the U.S., given their better returns. Over the last five years, U.S. stock investors have seen a total return of 116% compared to just 45% for U.K. investors.

Despite this, changes are on the horizon. The U.K. government’s "Edinburgh Reforms" aim to make the local stock market more appealing by allowing founders to maintain more control over their companies while still selling shares.

In support of U.K. investments, financial leaders like Larry Fink of BlackRock have noted that the market is undervalued. This could entice more investors back to the U.K. markets.

Even big firms like Shell are feeling the pressure. The company recently received warm feedback during investor meetings in New York, and its shares currently trade significantly cheaper than their U.S. counterparts.

All this points to a stark reality: companies listed in the U.S. often have better prospects for growth and expansion, which impacts the U.K. financial ecosystem. A strong local market generates business for accountants, lawyers, and other professionals essential for company operations.

As the lines between the U.K. and U.S. markets blur, the implications for investors, firms, and the economy become clearer. The future might hinge on improved listings and better access to capital in the U.K.

For a deeper understanding of the financial landscape, you can check out this insightful report on the current state of the U.K. market.

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