{"id":3606,"date":"2021-01-07T20:11:37","date_gmt":"2021-01-07T23:11:37","guid":{"rendered":"https:\/\/inspirgroup.com\/?p=3606"},"modified":"2021-11-09T18:27:50","modified_gmt":"2021-11-09T21:27:50","slug":"direct-listing-becomes-more-attractive-but-not-for-all-companies-going-public","status":"publish","type":"post","link":"https:\/\/inspirgroup.com\/en\/direct-listing-becomes-more-attractive-but-not-for-all-companies-going-public\/","title":{"rendered":"Direct Listing Becomes More Attractive, but Not for All Companies Going Public"},"content":{"rendered":"

Direct Listing Becomes More Attractive, but Not for All Companies Going Public<\/strong><\/p>\n

The US Securities and Exchange Commission recently approved a proposed change to NYSE listing rules that would allow private companies to raise capital through a direct listing.<\/p>\n

Like an initial public offering, or IPO, a direct listing on a stock exchange is a means for shareholders of a private company to sell their equity to outside investors. However, unlike an IPO, there is no initial sale to underwriting banks or pre-opening sale of shares to initial buyers, typically institutional investors. Rather, the initial sale of the shares is conducted through a stock exchange, with the initial price determined by matching buy and sell orders, as occurs for the shares of any listed company each trading day.<\/p>\n

Because the shares are not sold at a discount to underwriting banks and banker fees are substantially lower, a direct listing is a far less expensive way for a company to go public and for selling shareholders to maximize what they receive for their shares. Until the SEC\u2019s approval of the NYSE\u2019s rule change, companies that chose this alternative route to going public were unable to raise capital. What it did do was create liquidity for existing shareholders (investors and employees) at the IPO and eliminate the need for the typical 180-day lock up period post IPO.\u00a0 The most notable companies to choose this option prior to the new SEC ruling are Spotify Technology (2018), Slack Technologies (2019), Palantir Technologies (2020) and Asana (2020).<\/p>\n

Now, in a single public transaction, shareholders of a private company can monetize their stake while capital to fund the company\u2019s growth can be simultaneously raised from outside investors.<\/p>\n

This added benefit has made the direct listing attractive to companies in need of cash or with a desire to enhance their capital structure. But like any transaction in the capital markets there are advantages and drawbacks, which vary by company. In light of the recent SEC ruling, it\u2019s worth revisiting each, as \u201cone size does not fit all\u201d companies going public.<\/p>\n

Advantages of direct listing<\/strong><\/p>\n