Deliveroo’s exit from the UK market signals a larger trend
When DoorDash, the US food delivery giant, announced its £2.9 billion takeover of Deliveroo, it brought into sharp focus a stark truth about the UK’s position in the global stock market.
Despite being a popular player in the food delivery space, Deliveroo’s fate was sealed by a combination of financial realities and the comparative attraction of US markets.
Deliveroo and DoorDash share striking similarities. Both started as food delivery services, providing convenient access to restaurants and expanding into broader convenience shopping, including items like nappies, pet food, and flowers.
Yet, while the two companies once seemed to be on parallel tracks, their fortunes diverged significantly.
When Deliveroo went public on the London Stock Exchange in 2021, DoorDash had already listed in New York.
At that time, DoorDash was valued at five times the market capitalisation of Deliveroo. Fast forward four years, and DoorDash is now valued 35 times more than its UK counterpart.
But it’s not just the overall valuation that tells the story; the performance of each company’s shares offers a stark contrast.
DoorDash investors have seen a return of 84%, while Deliveroo shareholders have endured a 56% drop in value.
This gap in financial power has allowed DoorDash to swoop in and acquire Deliveroo, even as the latter turns a profit.
The Deliveroo deal is not an isolated case but part of a much broader trend.
More and more UK companies are opting to list in the US rather than the UK, and this has led to the steady departure of high-profile firms from the London stock market.
Why is this happening? It’s all about valuations and market demand. The top 500 US companies trade at an average of 28 times their annual profits, compared to just 12 times for the 100 largest UK companies.
When you take out the tech giants—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—the disparity is still glaring, with US companies trading at 20 times earnings, more than double the UK’s premium.
Even more telling is the decline in UK investors’ appetite for UK stocks. Over the last three decades, the share of the UK market owned by domestic financial institutions has plummeted from 50% to less than 5%.
UK pension funds, seeking safer investments and higher returns, have increasingly turned to US markets. This shift has paid off, with US shares providing a return of 116% over the last five years, compared to just 45% for UK stocks.
However, the UK government is aware of this issue and has taken steps to reverse the trend. The “Edinburgh Reforms” aim to make UK listings more attractive, including reducing the proportion of shares available to the public and allowing founders to retain more control over their companies even as they sell stakes.
The UK’s undervaluation has not gone unnoticed. Financial heavyweights like BlackRock’s Larry Fink and JP Morgan’s Jamie Dimon have recently praised the UK market for being undervalued.
But for many, the damage has already been done, and the rising trend of US-acquired UK companies continues unabated.
The broader implications of these deals go beyond corporate strategy. While it’s true that investors can buy shares whether a company is listed in the UK, US, or elsewhere, the impact on the UK economy is significant.
The financial services industry in the UK still accounts for over 10% of the economy and contributes more than 10% of tax revenue.
However, as the number of companies listing in the UK shrinks, so too does the economic activity that supports these businesses—lawyers, accountants, financial PR firms, and more.
Deliveroo’s departure from the London Stock Exchange is just the latest example in a growing trend. Companies like Arm Holdings, Morrisons, and Shell have already made similar moves, and many more UK-listed companies may follow suit.
As companies continue to shift their focus to US markets, the question arises: Can the UK stock market ever regain its previous stature?