Approval of direct listing financing by the US Securities and Exchange Commission will be seized by some start-ups, but most companies will still opt for an initial public offering (IPO), according to capital market officials. ..
Last week, financial regulators shed light on the New York Stock Exchange’s request to allow companies to raise money on their stock market debut through a direct listing, rather than using an underwriter like an IPO.
The move was celebrated by Silicon Valley investors. They complain that investment bankers often do insufficient work to assess the demand for IPOs, even though they charge large fees. They pointed out the offer of home leasing company Airbnb Inc and food delivery app DoorDash Inc this month, raising concerns that their stocks rose 92% and 142%, respectively, on the first day of trading, leaving money on the IPO table. ..
According to bankers, the pop is due to the limited number of shares available for post-IPO trading, with the price Wall Street elites pay to buy for offerings and stock market investors launching. There will be a big gap between the price you pay to buy the stock after you do.
Direct listing does not cause such problems, as stock market investors are allowed to buy shares issued directly by the company on the first day of trading.
“I’m excited to see the SEC take a progressive approach to this topic,” said partner Jeff Richards. “Everyone is more than between the listing price and the price at which it is traded. I want to find a little more equilibrium and lockup fairness. ” At GGV Capital.
Still, direct listings offer trade-offs that continue to make IPOs attractive to many companies, capital market experts say. Underwriters convince companies about how much money they will raise prior to an IPO, but companies seeking funding through a direct listing will raise how much money until the stock begins trading. I do not know.
“The SEC move is an additional benefit, but I think many companies will continue to choose IPOs. We need to refer them to underwriters and institutional investors,” said Mayer Brown, co-head of the global capital markets. One Anna Pinedo says. practice.
Fine adjustment of underwriting
IPOs are weeping this year as companies embark on a stock market backlash following a coronavirus slump. Globally totaling $ 220 billion, an increase of 25% year-to-date.
Direct listings that do not allow companies to raise funds are already permitted by the SEC, but few companies have chosen them. The most notable examples of this year’s direct listing were data analytics firm Palantir Technologies and workplace software maker Asana Inc.
One of the reasons many companies stick to IPOs is that mature private companies tend to be less talked about among investors than popular startups, so large first-day trading pops are unlikely. Says capital market experts.
Companies also prefer to be able to choose an investor base at the time of underwriting and allocate more shares to long-term investors such as mutual funds.
“Most companies still go through the traditional IPO process, but I think there are potential innovations in the structure,” said Neil Kell, chairman of Bank of America Corporation’s equity capital markets. “The ability of management to choose a particular shareholder base on the first day remains invaluable.”
A recent adjustment to the IPO process developed by companies such as DoorDash used a “hybrid auction” when underwriting. In this process, investors are asked to specify exactly how much they are willing to pay for the shares they seek. Still, this wasn’t enough to eliminate the huge first-day trading pop often fueled by retail investors trading on apps such as Robin Hood.
Another adjustment includes the ability of insiders to sell stock. IPOs usually come with lockups that prevent existing shareholders from cashing out after the first share sale, but some companies, such as Airbnb, are negotiating employee exceptions.
Greg Rogers, a capital markets partner at law firm Latham & Watkins LLP, said:
The big impetus behind the promotion of direct listing is the suspicion among investment bankers and venture capital investors. They see them driving weird deals to allocate the most shares in the IPO to top clients.
Companies that use direct listings do not have to pay underwriting fees, but they do need to seek advice from investment bankers on how much they are worth and how to market their products. Bankers will also advise on financing as new direct listings unfold.
This toll pool is less than an IPO, but less banks are shared, allowing one bank to pay a significant amount for the offer.
For example, Spotify Technology SA, a music streaming service launched directly through its listing in 2019, has spent $ 35 million on advisory fees to Goldman Sachs Group Inc., Morgan Stanley, and Allen & Company.
Goldman Sachs and Morgan Stanley also participated in the IPOs of business software companies Snowflake Inc and Airbnb this year, paying underwriters $ 122 million and $ 74 million, respectively, but these fees are much larger for banking groups. Had to share with.
Despite the initial public offering, most companies choose IPO
https://www.businesstoday.in/markets/global-markets/most-companies-to-opt-for-ipos-despite-new-direct-listings/story/426290.html Despite the initial public offering, most companies choose IPO