Direct listings grew this year, but slowly, like a house plant. Meanwhile, initial public offerings and special-purpose acquisition mergers exploded: Dealogic says 942 companies have gone public in 2021, including 383 IPOs and 599 SPACs. Direct listings? Just seven.
In April 2018 Spotify launched the first direct listing, in which shareholders, but not the company, sell stock at the debut. Direct listings were initially viewed as a threat to traditional IPOs. Some prominent companies— Palantir , Roblox , Coinbase , Warby Parker —used the process, but the club remains tiny, at 13.
Still, direct listings have fans. University of Florida IPO watcher Jay Ritter is upbeat, as long as there are no blowups like accounting scandals. “More and more companies will use direct listings to avoid selling underpriced shares in a traditional IPO or the dilution due to sponsor shares that come with a SPAC merger,” he says. Adds Eddie Molloy, Morgan Stanley’s co-head of equity capital markets for the Americas, “They will not replace IPOs, but provide companies another avenue to the public markets.”
The process works best for companies that don’t need the capital. Direct listers use Wall Street firms as financial advisors (and sometimes as market makers), not underwriters. As a result, fees are “materially” less, says David Ethridge, co-lead of PwC’s IPO Service unit, though it’s hard to determine with so few direct listings.
Moreover, institutional investors can sell immediately in a direct listing—no lockups—while smaller investors don’t have to buy into a huge day-one runup. And companies avoid the risk of mispricings.
Last Week
Back on Track
After variant-driven index losses two weeks ago, Bitcoin plunged on Saturday and partially recovered on Sunday, a stumble blamed on institutional trading. But stocks rose on news that the Omicron variant might be less severe, and that China was preparing to cushion property defaults; Apple neared a $3 trillion market cap. The Big Quit continued: 4.2 million left their jobs in October, a bit less than September. Inflation ran at 6.8% year on year, a level last seen in 1982. Still, it was a bullish week, with the Dow Jones Industrial Average soaring 4%, to 35,970.99; the S&P 500 rising 3.8%, to 4712.02; and the Nasdaq Composite advancing 3.6%, to 15,630.60.
Mild, but Contagious
Early data on patients from South Africa suggested that Omicron might be less severe than earlier variants, if more transmissible. Fewer patients appear to require ventilation in intensive-care wards. Pfizer said a third dose of the vaccine should be able to handle Omicron.
The Face of Default
China’s central bank reduced reserve rates to stimulate a slowing economy. China Evergrande’s stock fell to an 11-year low after the company said there was no “guarantee” it could support its debt and that it would “actively engage” with the government. Evergrande then blew through the grace period on an $82 million bond payment, and Fitch declared the developer (and another, Kaisa) in “restricted default,” or default without a bankruptcy filing. By then, officials had joined Evergrande’s new risk committee and arrived to oversee its finances.
Talking Ukraine
President Joe Biden convened a virtual summit with Western allies to discuss the buildup of Russian troops on Ukraine’s eastern border, then held a two-hour videoconference with Russian President Vladimir Putin. Biden warned Putin of significant sanctions if Russia invades Ukraine and urged Germany to block Russia’s Nord Steam 2 gas pipeline if Russia strikes.
Fiscal Housekeeping
The House approved bills on extending the debt ceiling and on military spending. The Senate then voted to disallow a filibuster on a debt-ceiling vote, which would allow the measure to pass without GOP votes. End of crisis for now.
Annals of Deal Making
Activist investor Engine Capital urged Kohl’s to sell itself or spin off its e-commerce unit…Shares of BuzzFeed gained 50%, then lost 11% in their debut. After merging with a SPAC, the online media company saw investors pull 94% of their money from the deal…The Securities and Exchange Commission is investigating two SPAC deals: former President Donald Trump’s Trump Media and Technology Group’s planned merger with Digital World, and the SPAC deal for electric-vehicle maker Lucid. Trump Media also hired outgoing Rep. Devin Nunes to be its CEO… Intel said it would take public its autonomous-driving unit, Mobileye, which it bought for $15.3 billion in 2017… Vivendi said it was launching a takeover of Lagardère, owner of publisher Hachette.
Write to Luisa Beltran at luisa.beltran@dowjones.com
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Direct Listings Once Looked Like a Threat to Traditional IPOs. Now They’re an Option for the Few. - Barron's
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