The recent takeover of Deliveroo by the American company DoorDash has sparked discussions about the challenges faced by UK firms in retaining competitive stature in the global market. This transition from a homegrown UK business to a US-owned entity shines a light on the contrasting conditions characterizing the US and UK stock markets, revealing a wider concern regarding the UK’s ability to retain its leading companies.
Deliveroo and DoorDash are counterparts in the food delivery service sector, initially emerging as platforms that catered to the needs of consumers seeking convenient access to restaurants and allowing establishments to enhance kitchen capacity by offering deliveries. Both companies diversified their service offerings over time, venturing into retail products such as diapers, flowers, and pet supplies. Notably, both entered the public market through Initial Public Offerings (IPOs) around the same timeline, with Deliveroo listing on the London Stock Exchange and DoorDash on the New York Stock Exchange. However, this convergence in their kickoff has led to a stark divergence in their market trajectories.
When Deliveroo went public, DoorDash’s market valuation stood at five times that of Deliveroo. Fast forward four years, and DoorDash’s valuation escalated to a staggering thirty-five times that of its UK rival. Such inequities raise questions about the underlying dynamics at play. While it is essential to consider that DoorDash has managed to issue additional shares to feed its growing market capitalisation, the crux of this discrepancy lies in the contrasting appetite for investment between the two markets. The enthusiasm surrounding the US company has allowed it to thrive by attracting substantial capital from investors eager to bet on its growth, leading to a significant boost in its financial standings.
Moreover, investor sentiment towards the two companies further exemplifies this disparity. An individual buying shares in DoorDash has seen an 84% appreciation in value, while those invested in Deliveroo have experienced a notable 56% decline since its IPO. This situation has positioned DoorDash to acquire Deliveroo at a time when the latter is, ironically, on the brink of profitability—a poignant irony that underscores the challenges faced by UK businesses looking to maintain independence in a competitive marketplace.
Venture capitalist Danny Rimer, who was among Deliveroo’s original backers, expressed regret over the decision not to pursue a US listing, revealing a broader sentiment within the enterprise that favours the benefits of US capital markets. As UK firms continue to struggle with public market valuations that fail to match their potential, many are opting for a path that leads to US ownership rather than capitalising independently.
Diving into the core issues, other key factors have come to light to explain why UK companies are increasingly eschewing domestic listings for opportunities in the US. The disparity in valuations is stark; while the largest publicly traded US companies boast an average valuation of 28 times their yearly profits, their UK counterparts languish at a dismal 12 times. This significant gap not only highlights potential inherent value in UK firms but also evokes concerns that a lack of investor enthusiasm for local stocks could result in sustained underperformance, exacerbated by shifting investment habits — where UK institutions have gradually reduced their shareholdings in local enterprises in favor of higher returns in the US market.
Despite the darker clouds on the horizon, there are emerging reforms that may revitalize the situation. The UK government’s “Edinburgh Reforms” aim to render UK listings more enticing by altering regulations around stock ownership and voting rights. Industry titans such as Larry Fink and Jamie Dimon have remarked on the undervaluation present in the UK market, suggesting a potential resurgence based on value recognition, particularly as the market begins to show signs of outperforming the US.
The trend of US acquisitions of UK firms is concerning. While individual investors can still benefit from shares in either territory, a robust UK listing serves as a catalyst for ancillary financial services vital to the national economy. With a considerable portion of the UK economy tied to financial services, the loss of prominent companies to foreign markets diminishes available business, reducing the tax contributions and economic impact that these firms can offer domestically.
In conclusion, the impending takeover of Deliveroo by DoorDash symbolizes a continuing trend that poses fundamental questions about market dynamics and national economic health. As the UK grapples with challenges retaining key companies in a competitive global environment, the ultimate impact on both financial markets and national prosperity remains to be seen.