William John Market Report 08-07-21
William John makes an observation on the flotation of Wise Plc and the future for direct listings in equity capital markets.
William John, Wise Plc, IPO, direct listing, public flotation, capital markets, William John Capital Bonds, William John Holdings Ltd,
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William John Market Report 08-07-21

William John Market Report 08-07-21

Category: Reports

On Wednesday morning (07/07), Wise – formerly known as TransferWise – completed the biggest direct listing in London Stock Exchange History. 

A direct listing is a common alternative to an Initial Public Offering. The conventional IPO involves investment banks creating new shares for public sale and drumming up interest for them, offering to underwrite the sale to guarantee a smooth and stable listing. This can result in a 90- or 180-day share lockup period, dilution of existing shares and high fees. 

The Direct Public Offering or “direct listing” sells existing, outstanding shares directly to the public market. This process comes at a much lower cost as it avoids a need for an intermediary and prevents shareholder dilution and lock-up periods. Whilst both have their merits, direct listings as well as SPAC mergers have been rising in popularity in recent years as alternative ways of raising interest free capital. 

After going through an auction process to determine the initial listing price, Wise opened at 800 pence a share on the London Stock Exchange on 07/07 giving it a valuation of almost £8 billion. This was double its $5 billion valuation in July last year. By early afternoon trading, it had shot up to 827 pence a share (as of 1:38PM British Summer Time). 

The success of Wise’s listing is no coincidence. It runs a tremendously successful international money transfer and multicurrency banking business which attempts to undercut competition from traditional commercial banks. Financial technology is an ever increasingly valuable industry for investors and capitalists, ranging from Blockchain technology to peer-to-peer lending to mobile banking to Wise, the anti-establishment banking sector is growing. 

It joins many other successful direct listings in recent years including Spotify, Coinbase, Palantir Technologies and Slack who all directly listed in the United States on either the NASDAQ or NYS Exchanges. Much like their American counterparts, financial authorities in the U.K. are hoping that the successful direct listing of Wise will attract more companies to choose the London Stock Exchange to float for public capital. 

So much so that the Financial Conduct Authority recently announced new proposals to allow more “dual class” shareholdings for new listings. A dual class share structure is usually used to give a company’s management and/or founders a class of shares with a concentrated portion of their company voting rights and a secondary class with less voting rights for public sale. This can prevent hostile takeovers, proxy wars and other manipulations of the management structure of the business. 

These share structures are popular with technology businesses in particular, whose founders are unwilling to give up ownership and control of their business as they often serve as the pioneer of the business in the first place. A popular example of this share structure being used effectively is Facebook, whose Class A shares are publicly traded and whose Class B shares are held by Zuckerberg and Co. The Class B shares have allowed Mr. Zuckerberg and his partners to retain control of his company as it has grown to become one of the top five most valuable companies in the world by market capitalisation on the surge in value of its Class A shares. 

It must be considered that direct listings only function effectively for high profile companies that do not need to raise large amounts of capital since the listing occurs without a bookbuild and traditional roadshow that builds a high demand prior to an IPO. However, for the subset of companies that have an immense public profile, the direct listing is proving to be a viable method to float and undoubtedly will play an increasingly important role for public flotation in the future. 

Any opinions expressed in these documents are those of William John and are provided for information only. E&OE.