Goldman Sachs lines up a second tech float in Wise

Goldman Sachs, a key adviser on Deliveroo’s car crash market debut last week, is brushing aside a storm of protest and is already preparing to unleash its second giant tech listing this year. 

Sources last night said Goldman Sachs and Morgan Stanley were on track to sell shares in financial technology giant Wise next month with a valuation of up to £5billion. 

Wise, which counts Virgin’s Sir Richard Branson as an investor, is one of the ‘tech stars’ that Chancellor Rishi Sunak hopes will make London a prime venue for Initial Public Offerings – the public sale of shares on the stock market. 

Flop: Deliveroo saw £2bn wiped off its value on its stock market launch day

The Government commissioned Tory peer Lord Hill and ex-Worldpay boss Ron Kalifa to lead sweeping reviews of IPO rules in a bid to lure fast-growing, tech-savvy firms to Britain. But Deliveroo’s disastrous week, which saw £2billion wiped off its value on its first day of trading, has been a huge setback. 

Goldman Sachs and five other banks that led the Deliveroo share float risk losing about £18million in fees following a backlash from investors, according to one report. 

Goldman came under fire when it floated lender Funding Circle in 2018 after shares fell as much as 24 per cent on its first trading day. 

But sources close to the fintech Wise said Deliveroo’s bitter experience had ‘no bearing’ on its plans to list. Wise has been profitable since 2017 – in stark contrast with many loss-making start-ups including Deliveroo, sources said. 

HOW WE WARNED OF ‘FLOPPEROO’ 

Deliveroo’s  share price collapse on its first day of trading followed revelations in The Mail on Sunday two weeks ago that institutional fund managers had baulked at the company’s value. 

Top investors told this newspaper that the £7.5 billion float organised by brokers at Goldman Sachs and JP Morgan was ‘ludicrously priced’ and they would not be buying shares. 

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Flashback: How we raised the alarm about the float two weeks ago

However, despite the MoS raising the alarm on deep scepticism swirling the City, Deliveroo and its brokers decided to press ahead with last Wednesday’s float – even announcing on the day after our warning that they fancied an even higher valuation than first mooted – £8.8billion. 

A string of fund managers such as Aviva, M&G and Legal & General denounced the plans in the ensuing ten days, citing concerns about working conditions, lack of investor power and profitability. 

The float launched at the bottom of the range at £7.6billion before shares fell 30 per cent – leading to the name ‘Flopperoo’.

                                                                                      Ben Harrington and Emma Dunkley 

Wise was among the ‘tech stars’ whose representatives met with Prime Minister Boris Johnson last year. Kristo Kaarmann, co-founder of Wise, recently told the MoS: ‘We certainly are one of the largest tech companies in London – and one of the fastest growing ones. 

‘There have been regular engagements with the Treasury and with the Government [and fast growing tech firms].’ 

UK cybersecurity company Darktrace is finalising plans for a £3billion stock market listing, Sky News reported yesterday. 

Richard Buxton, a fund manager at Jupiter Asset Management, said: ‘The Deliveroo fiasco does not mean London is closed to exciting growth companies like Wise. But it signals advisers should think carefully about voting structures and, above all, valuations.’ 

Deliveroo uses dual class shares, which have been criticised for giving company founders greater voting rights over ordinary shareholders. It is understood that Wise is also planning to use dual class shares. 

However, sources said The Hut Group floated at a value of £5.4billion and also used this structure. Its shares rocketed 30 per cent on its trading debut. 

But last week’s flotation flop is a blow for Chancellor Rishi Sunak, himself a former hedge fund executive. 

He has described Deliveroo as a ‘true British success story’. Deliveroo also has a handful of former Treasury advisers working at the firm. When asked by ITV last week if he felt embarrassed by the flop, 

Sunak brushed off concerns, replying: ‘Gosh, no. Share prices go up, share prices go down. We should celebrate success in this country.’ 

But financial heavyweights including Aviva, M&G, Jupiter, Aberdeen Standard and L&G have queued up over the past two weeks to criticise the meal delivery company, founded by Will Shu. 

Among fund managers’ fears are that Deliveroo may have to give its 100,000 riders worldwide ’employee’ status which could come at a huge cost to the company. Some Deliveroo workers are said to have earned as little as £2 an hour. 

Barry Norris, the fund manager at Argonaut Capital who successfully bet on the share price collapse of disgraced German financial services company Wirecard, said: ‘Considering inflated, never-profitable revenues, unsustainably low labour costs, dubious corporate governance and a greedy valuation, the stock market delivered its own ’30 per cent off’ verdict’. 

Geir Lode, of fund giant Federated Hermes, said Deliveroo’s flexible employment model ‘exposes the company to risks around the future regulations of workers’ rights’ which could hit profitability. 

He added: ‘Without significant improvement on [these] issues and more clarity on the firm’s risk mitigation strategies, we have no appetite for Deliveroo at this time.’

The ‘dual class’ shares were also a turn-off for investors. David Cumming, chief investment officer for equities at Aviva Investors, added: ‘I’m generally not in favour of dual class shares because unsurprisingly shareholders want voting rights.’ 

But Kalifa, the mastermind of the Government’s blueprint for listing more fintechs in Britain, told the MoS that reforms were vital to attract ‘future Teslas and Apples’ to the UK. ‘Dual class shares are attracting scrutiny, but they do play a part in allowing company founders to help fend off corporate takeovers so that shares remain in public hands for longer.’ 

Kalifa said the City already lags behind New York and China, attracting just 5 per cent of global listings since 2015. ‘Tech-enabled companies are crucial for future economic growth and jobs in the UK,’ he added. 

Deliveroo’s finance boss Adam Miller attempted to reassure staff last week. In an email, he blamed ‘volatile’ markets, pointing out that most other European and US flotations are also trading below their initial offer price. 

He added: ‘Don’t underestimate Deliveroo. Our share price will go up and down, but in the long run, none of the volatility matters. What does matter is controlling what we can control, executing on our plan and delivering on the targets that we have set out for ourselves and to the market. We have had and continue to have support from well-respected public market investors through this process.’ 

But a senior banker told The Mail on Sunday: ‘Deliveroo has been a blow to London as a listings venue. If I were an entrepreneur, I’d think twice about listing in London.’