A third top investor has revealed it will not invest in Deliveroo’s upcoming stock market float, describing the meal delivery company’s treatment of workers as a “ticking bomb” that could threaten its business.
BMO Global Asset Management on Thursday said it would not be buying shares in Deliveroo when it lists on the London stock exchange and that the company’s labour practices were one important part informing the decision.
It came after two of the UK’s largest investment managers, Aviva Investors and Aberdeen Standard Investments, both cited concerns over treatment of workers for their decision to skip Deliveroo’s initial public offering (IPO).
Acerca de 29 investors will today discuss the float and worker rights issues in a meeting organised by ShareAction, a group that campaigns on investment issues. The meeting comes as a survey of Deliveroo couriers revealed many receive an hourly rate below the minimum wage, with one reporting being paid as little as £2 an hour.
Phil Webster, a portfolio manager at BMO, said labour issues represented a “ticking bomb on the side” for Deliveroo, which contributed to making it “uninvestable”.
He highlighted increased competition from Just Eat Takeaway, an Anglo-Dutch rival that is seeking to expand its own delivery business with workers who are directly employed as opposed to Deliveroo’s contractors.
At the same time the threat of regulation could add to costs, making Deliveroo’s efforts to reach profitability much harder. The company lost £224m in 2020, even as demand for takeaway deliveries boomed.
“You’ll wake up one morning and your stock will have halved because the government says this is not acceptable,” said Webster. “I just cannot see past the workers’ rights. I think you are storing up a massive hole in the business model.”
Andrew Millington, head of UK equities at Aberdeen Standard, dicho: “As long-term investors, we’re looking to invest in businesses that aren’t just profitable but are sustainable. Employee rights and employee engagement are an important part of that.
“We will not be taking part in the Deliveroo IPO as we are concerned about the sustainability of the business model, including but not limited to its employment practices, and also the broader governance of the business.”
Deliveroo, which was co-founded in 2013 by Will Shu, a London investment banker, es seeking a valuation of up to £8.8bn when it floats on 7 abril.
It is one of the most prominent British companies in the gig economy, with its delivery workers paid on the basis of single jobs rather than given a steady salary and the benefits associated with employee status.
The flexibility offered by gig economy companies is welcomed by some people, but investors are increasingly taking notice of concerns that the business model shifts risk from the company on to workers.
A UK supreme court decision to classify workers at Uber as employees has also highlighted a possible risk of legal action and increased costs for companies such as Deliveroo. Deliveroo has set aside £112m to cover the possible costs of drivers taking legal action.
A Deliveroo spokesperson on Wednesday said: “We are confident in our business model, which has been upheld by UK courts three times, including the high court twice.”
Self-employment and free insurance offer workers flexibility, they added.
Martin Buttle, of ShareAction, dicho: “There are a number of investors who are very aware of the issues at Deliveroo and are considering their approach.”
The Montreal-headquartered BMO is one of the largest banks in North America. It counted $950bn (£692bn) in assets group-wide in December.