London, England — The recent acquisition of Deliveroo by DoorDash illustrates the contrasting dynamics of the U.S. and U.K. stock markets. With the deal valued at approximately £2.9 billion, the merger will establish a company that operates across more than 40 countries, significantly expanding DoorDash’s footprint.
Both DoorDash and Deliveroo began as platforms focused on food delivery, offering consumers quick access to meals from local restaurants. Over the years, both companies have diversified, adding products like household items and groceries to their service menus. Despite launching their initial public offerings around the same time—DoorDash on the New York Stock Exchange and Deliveroo on the London Stock Exchange—their growth trajectories have diverged sharply.
When Deliveroo went public, DoorDash’s market value was five times greater. Fast forward four years, and that ratio has escalated to 35 times. The difference can be attributed to DoorDash’s successful capital-raising efforts in the U.S. markets, facilitating its expansion while enabling it to issue more shares, thus increasing its overall market capitalization.
While share prices can provide insight, they reveal a stark contrast as well. Investors in DoorDash have witnessed an impressive 84% increase in share value, while those holding Deliveroo shares have faced a 56% decrease. This financial disparity positions DoorDash to leverage its monetary strengths to acquire Deliveroo just as the latter reports a return to profitability.
Industry insiders, including early Deliveroo investor Danny Rimer, have expressed regret regarding the company’s decision to list in London. They argue that access to U.S. capital markets played a pivotal role in DoorDash’s current ability to propose an acquisition. This scenario highlights a broader trend: U.K. companies are increasingly opting for U.S. listings over their domestic exchanges.
Several factors contribute to this migration. One significant reason is valuation discrepancies; the average market capitalization of the S&P 500 companies rests at 28 times annual profits, while the FTSE 100 trades at roughly 12 times. This stark difference can be partly explained by the presence of some of the world’s most lucrative corporations, often referred to as the Magnificent Seven—companies like Alphabet, Apple, and Tesla. Excluding them still leaves U.S. shares trading at 20 times earnings, significantly higher than U.K. valuations.
Another influencing factor is waning demand from domestic investors. Over the last three decades, the proportion of U.K. equities held by local financial institutions has plummeted from 50% to less than 5%. Regulatory shifts have nudged pension funds towards safer investments, like government bonds, while fund managers often prefer U.S. equities for their superior returns—a preference validated by recent performance metrics.
Meanwhile, the U.K. government is initiating reforms aimed at enhancing the attractiveness of its stock market. Proposed changes, referred to as the “Edinburgh Reforms,” aim to adjust the proportion of public shares available and strengthen voting rights for founders looking to retain control while expanding their companies.
In a recent statement, financial leaders such as Larry Fink from BlackRock and Jamie Dimon from JPMorgan have remarked on the undervaluation of the U.K. market. Their observations, alongside improving market conditions, hint at a potential renaissance for U.K. stocks this year.
However, the ongoing trend of U.S. acquisitions of U.K. companies remains pronounced. Industry discussions indicate that even major firms like Shell might consider relocating to U.S. markets, driven by the substantial discount on their shares compared to American rivals. This trend emphasizes that companies in the U.S. enjoy access to greater financial resources for growth and acquisitions.
As Deliveroo prepares for its acquisition by DoorDash, it joins a growing list of firms that have transitioned away from the London Stock Exchange. The implications stretch beyond individual companies and pose questions regarding the future of the U.K. financial services industry, which significantly contributes to the national economy. As investor interest sways and listings dwindle, the U.K. faces the challenge of restoring its allure as a premier market destination.