![]() “There are very few companies that want to go through all of this trouble to become a public company and not raise capital at the time of debut,” David Ethridge, PwC Deals managing director, told Yahoo Finance.īut the absence of a capital raise is less of a concern for Slack, given its current cash position. So what are the downsides?įor most companies, the hallmark of a direct listing – the lack of a capital raise – is reason enough to favor an IPO. Early investors can choose to cash out, companies get public shares that can be used as currency for future mergers and acquisitions, and new equity can be issued for follow-on raises down the line. Whether by direct listing or IPO, going public can have many benefits for a company and its shareholders. As of June 18, Slack reported that about 194 million Class A shares would be available for trading Thursday. And since new shares aren’t being issued, a direct listing is much less dilutive for a company.Ĭompany filings from the past month show that Slack’s shareholders have been actively converting Class B shares into publicly tradeable Class A shares in anticipation of the listing. In a direct listing, existing investors’ converted stock comprises all of the shares offered to the public. The requirement is meant to keep these investors from liquidating their assets too quickly – but it also keeps them sidelined from cashing in paper gains in the event of early share price appreciation. With a lock-up, company insiders and certain other stakeholders are barred from selling their shares, typically for between 90 to 180 days after the IPO. I think their CEO has a really clear vision and probably doesn’t really want or need their advisers mixing up the message.”Īnd as a major benefit for existing investors, a direct listing removes the lock-up period required in a typical IPO. “They’re very focused on what they’re trying to do. “A company like Slack, I think, has a very honed message,” he added. “If you enlist a bunch of bankers to help you got to market, the bankers are going to be very involved in crafting what your pitch deck looks like, how you tell your story to investors, what you’re saying on the road,” Paul Condra, emerging-tech analyst for PitchBook, told Yahoo Finance. With a firm like Slack, which already has more than 10 million daily active users and a known brand, some analysts say turning over the marketing reins to banks could actually do more harm than good. Plus, a direct listing does away with the brouhaha of a lengthy roadshow – the mainstay of a typical IPO wherein underwriters and company executives gather investors in hotels and conference rooms to try and garner support for the soon-to-be public company. A direct listing pares down the underwriting fees incurred, which on average total 4-7% of gross proceeds, along with additional offering costs directly related to the IPO. In contrast, IPOs can have more than a dozen investment banks involved as underwriters. as primary financial advisors for the deal – the same consortium that advised Spotify’s direct listing. Slack has brought on Goldman Sachs ( GS), Morgan Stanley ( MS) and Allen & Co. Why do a direct listing in the first place?įor starters, by reducing the number of banks involved in their public listings, companies can significantly reduce the costs in fees related to regular-way IPOs. Here’s a look at what a direct listing means for Slack – and why a public listing with this profile could only work for a select group of companies. on record, according to data from the NYSE. Spotify ranked as the 5th largest opening trade in the U.S. Despite the chaos some investors predicted ahead of the non-traditional listing, Spotify’s first day of public trading was by and large a success. Last year, Spotify ( SPOT) was the first major company to list and offer public shares without a capital raise or the help of underwriters. But it isn’t the first company to embrace a direct listing. Slack, valued privately last year at more than $7 billion, in its prospectus called its go-public playbook “a novel method for commencing public trading” of its stock. Instead, shares that have been converted to publicly tradeable stock by existing investors are sold to the public. And direct listings nix the capital raise and new equity issuance that take place in a regular-way IPO. This go-public method reduces the number of banks involved in the process (and by extension, the fees the company pays out to them) and designates them as deal advisers rather than underwriters. ![]()
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