A Tale of Two Listings: How Darktrace And Deliveroo Have Shown The Best And Worst Of London's IPO Landscape

It’s a critical time for the London Stock Exchange. As the UK adapts to life in the wake of Brexit and a global pandemic, the nation’s chancellor, Rishi Sunak has been eager to advertise London as a tech hub in which upcoming companies can thrive via their flotations. Out of this conscious push towards welcoming new business came two IPOs in the space of one month: that of Deliveroo DROOF and Darktrace DARK. Ultimately, both flotations showed the best and worst of London’s IPO landscape. 

In 2020, Sunak implored Lord Hill, a former European commissioner on financial stability, to create reforms that would encourage “the most innovative and successful firms” to go public in London, rather than on the Nasdaq or New York Stock Exchange. 

This year, London got its big break, as Deliveroo opted to list domestically. The company angled for a $12 billion market cap in what would’ve been London’s biggest debut for 10 years. Instead, Deliveroo’s listing turned out to be a disaster. The company’s shares tumbled once trading began, paving the way to its current $6 billion market cap - 50% of its initial estimates. 

(Image: Investing Cube)

After more than two months of life on the London Stock Exchange, attempts at recovery have proved to be short lived, with investors opting to avoid buying into a company with a questionable approach on workers rights. 

Alongside the way the company treats its employees, there’s also the issue of the dual-class structure that enables disproportionate levels of control for CEO, Will Shu over the business’ actions for the next three years. 

London’s eagerness to adapt its rules to suit a new generation of tech companies led to the city and chancellor pinning their hopes on the flotation of a business that’s been shunned by investors. However, salvation for the London Stock Exchange may well have been ensured by the timely arrival of Darktrace’s flotation. 

The Darktrace Redemption

Although Deliveroo’s IPO failed to live up to expectations, it served as an excellent reality check for Darktrace to build on. When the Darktrace IPO was first announced, speculation was rife that a valuation of up to £3.6 billion was on the cards. However, the company revised its listing in the wake of Deliveroo’s turbulent flotation down to a valuation of between £2.4 and £2.7 billion. 

Speaking on the revision, Indraneel Arampatta, Megabuyte analyst said “while the early pop is strong, it's still worth noting that the IPO process has been marred by rumours and drama.”

Upon its launch, the UK behavioural security business popped over 40% after the valuation was cut. While shares were priced at 250p for a £1.7 billion LSE listing, the stock rallied to hit 355p in early trading. 

Darktrace’s more transparent voting rights model stands as a breath of fresh air for investors put off by Deliveroo’s more restrictive structure. The healthy start to life in the public eye has come as a great boost to the London Stock Exchange after investor confidence had been tested by the arrival of Deliveroo. 

Capitalising on a New Investment Landscape

The successful Darktrace listing comes at a pivotal time for the London Stock Exchange, where a perfect storm of fresh interest in IPOs has been complimented by a new wave of retail investors entering the market, thanks to the increased prevalence of investing platforms. 

Maxim Manturov, head of investment research at Freedom Finance Europe, claims that the rise in retail investors is “the consequence of the pandemic and the stimulation packages that followed. This created a pool of funds retail investors could start investing into stocks. As per Fidelity report, there were 26M retail accounts in 2020, i.e. up 17% compared to 2019, while the daily trading volume doubled.”

(Image: Investors Chronicle)

As the chart above shows, the IPO market has entered a boom period that London may have been set to miss out on in the wake of the Deliveroo listing. Although the city is on course to break its most recent records throughout a year of listings, it’s still losing out compared to the higher volumes of US and European exchanges. 

The successful listing of Darktrace may yet spark a fresh flurry of companies choosing London’s advantageous conditions as the venue for their flotation. At a time when investor sentiment and the sheer number of initial public offerings are so high, it’s become imperative that the UK works to attract more listings and welcome new trade. 

In banking on Deliveroo and its questionable ethics, London exposed its naivety in a market that’s increasingly socially aware and wary of the underhanded tactics of businesses. However, Darktrace has emerged as a saving grace to show the world that the LSE can be the place to have successful listings. At a time when the city’s in need of new business to help secure some prosperity in the wake of Brexit and COVID-19, Darktrace’s arrival could be a turning point for London IPOs.