Blow for the City as online car retailer Cazoo snubs London in favour of New York

We explored all of our options including a potential UK IPO. The UK is an amazing place to build a business. But the IPO process in the UK is challenging for companies that are investing in high growth. Those companies are better understood by US investors.”

So said Alex Chesterman, founder of UK-based Cazoo, an online used car retailer, to the Financial Times as he announced plans to go public in New York via a Special Purpose Acquisition Company. They’re all the rage among tech companies because they make joining a stock market cheaper and easier. 

In response, the City, and maybe Rishi Sunak, said: “Ouch”. Or maybe “oof” is the right word. By way of explanation, that’s what comic book writers use to signify a punch to the gut that knocks all the wind out of the victim. 

It’s hard to characterise a company founded and headquartered here shunning the City of London in any other way, especially as this is just a few short weeks after the chancellor hailed Lord Hill’s review into London’s listing rules. Lord Hill’s reform proposals included reducing the number of shares public companies have to have in issue, allowing those with “dual class” shares to qualify for premium listings, and making life easier for the sort of vehicle Cazoo is using. The aim is to tempt more techs to London. They are likely to be adopted more or less in full. 

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Hot on the heels of the announcement, the online food delivery company Deliveroo stepped up with plans to take advantage with one of the biggest IPOs in years. Well huzzah, they cried. 

They say a week is a long time in politics and the same is true of the City, all the more so if you make it, what, three weeks? 

Cazoo announced its decision to thumb its nose at London as Deliveroo announced that it expects to be valued at between £7.6bn and £7.85bn, which is towards the bottom of its original price range. It was previously hoping for a valuation closer to £9bn. 

It would be pushing it to describe the flotation as “troubled”. But Deliveroo has a big issue with the treatment of its riders, who are gig economy workers considered by the company to be freelancers. Their plight has been much discussed in recent days. 

The riders have previously staged protests, and taken to the courts. They’ve found the company a tougher nut to crack than Uber’s drivers did their employer. The business models are subtly different. But big money managers have nonetheless publicly voiced concerns. 

A legal reversal, or (less likely) legislative efforts to help riders, could force Deliveroo to hurriedly revise its business mode. 

Investors are concerned that this could complicate Deliveroo’s path to profitability. But one or two institutions have taken it upon themselves to raise the moral issues at play too. 

Did all this ferment have any role in Cazoo’s decision? Unlikely. New York has been aggressively pursuing UK and European companies. Their tech unicorns can easily find similar vehicles to the one Cazoo plans to jump into, combined with a ready supply of funds at a venue where there are is a ready supply of investors. It’s expecting to raise $1b to expand across Europe. There’s also a subscription service in the offing. Profits are not expected until 2024, but America’s tech investors are sanguine about that sort of thing and perhaps more sanguine than they are over here if there’s growth to be had. 

To be fair, it’s far too early to judge London’s new rules a failure in the light of Cazoo’s decision. But the latter does rather underline the scale of the challenge London faces in turning the tide and keeping future Cazoos at home. That would be a good subject for the first annual report Lord Hill suggested be submitted to the chancellor and parliament every year to cover things like the City of London’s competitiveness.