Through its direct listing, Spotify also wanted to ensure all buyers and sellers were given equal access. However, in an interview with TechCrunch, Barbara Gray, the founder of investment research firm Brady Capital Research, highlighted how this can raise the risk of volatility: “Unlike with an IPO, with benefits of stabilising bids and 90 to lock-up agreements prohibiting existing investors from selling their shares, a flood of sellers could hit the market.” Phillip Braun, a finance professor at Northwestern University’s Kellogg School of Management, told World Finance: “My view is that direct listings occur at the request of venture capitalists and private equity investors so that they can cash out of their investments easily.” Some investors find the absence of a lock-up period appealing. Marc Jaffe and Greg Rodgers, partners at Latham & Watkins, wrote in the 2018 case study: “By forgoing the underwritten offering process, Spotify was able to accomplish its goal of providing liquidity without imposing IPO-style lock-up agreements upon listing, and, as a result, the Spotify shareholders were free to sell their shares on the New York Stock Exchange… immediately.” The lack of a lock-up period was a big draw for Spotify, as the company’s lawyers wrote in a case study for Harvard Law School’s Forum on Corporate Governance and Financial Regulation. Direct listings eliminate this lock-up window. Conventional IPOs also employ a lock-up period of up to 180 days – a time following the IPO during which large investors cannot sell their shares. Companies that participate in traditional bookbuilding IPOs pay hefty fees to investment bankers, typically amounting to around seven percent of the proceeds of their IPO. Recode even reported in 2018 that Airbnb CEO Brian Chesky consulted with Spotify’s Ek about how Airbnb could seek its own listing.Ī number of factors make the direct listing route attractive, but most notable among them is the cost savings. Airbnb, which has not set a date for an IPO, has been earmarked as a prime candidate, with signs suggesting the company is considering its own direct listing. With a new precedent potentially set, industry insiders are debating whether more companies will pursue this unusual type of listing. Jay Ritter, a professor of finance at the Warrington College of Business at the University of Florida, said the move showed Spotify’s direct listing was “not just a one-off event”. Slack’s direct listing in June may signal greater prominence for the phenomenon. Questions are now emerging over the future of the IPO as a model for raising capital.Īlthough the advantages of direct listings are clear for some firms, the sacrifices made along the way can make them illogical for others Spotify’s direct listing could have remained an anomaly on Wall Street, but just over a year later, messaging platform Slack became the next large tech firm to pursue one. Normally, companies don’t pursue a direct listing.” “Normally, companies spend their day doing interviews on the trading floor touting why their stock is a good investment. “Normally, companies ring bells,” Spotify founder and CEO Daniel Ek wrote on his blog ahead of the listing. Spotify eschewed a typical initial public offering (IPO) in favour of a direct listing, where instead of issuing new shares to raise money, the company sold its existing shares directly to the market.Īlthough direct listings are not unheard of, Spotify’s was unusual. The listing was not only significant because of the music streaming platform’s huge popularity, but also because of the unconventional route it took to the public market. The global investment community watched with keen interest in 2018 when Spotify debuted on the New York Stock Exchange. Top 5 economic risk factors that must be considered.Top 5 ways that the finance industry can prepare for AI.Top 5 emerging fintech hubs across the globe right now.Top 5 ways that GDPR has impacted digital banking.Top 5 financial services that are ripe for automation.Top 5 ways to boost employee engagement and commitment. Top 5 most influential and inspirational US economists.Top 5 countries to be world’s next manufacturing hubs.Top 5 WFH habits, according to the world’s most successful business leaders.Top 5 keys to global economic recovery in 2021.Top 5 sustainability pioneers in Europe.Top 5 forces that will shape international finance in 2023.
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