By - Kunal Sawhney
- Direct listing process (DLP) is a way for a company to go public by offering its shares directly to the public without the help of underwriters or intermediaries.
- Unlike an IPO, a direct listing does not require the creation, underwriting and sale of new companies shares.
- Most recently, online currency exchange Coinbase announced its plans to go public via a direct listing.
Entrepreneurs often decide to take their privately-owned companies public, a step that is considered a big milestone for businesses. There are a handful of ways an enterprise can get its shares publicly listed on stock exchanges for trading, and launching an initial public offering (IPO) is one of the most common routes. Recently, reverse mergers using special purpose acquisition companies (SPAC) have also been a common trend among corporations to go public. Another method that has been creating a buzz is that of a direct listing process (DLP) or Direct Public Offering (DPO).
Let’s find out what exactly this process entails and how it is different from an IPO and a SPAC.
In simplest of terms, direct listings – aka direct placement or direct public offerings – is a way for a company to go public by offering its shares directly to the public without the help of underwriters or intermediaries.
The concerned company’s existing investors, promoters and employees who hold its shares can also sell them directly to the public in a DLP.
Like an IPO, direct listing is also a way to raise interest-free capital for a company by listing its shares on a stock exchange. But while IPOs require the creation, underwriting and sale of new companies shares, a direct listing needs none of that.
©Kalkine Group 2020
With direct listing, a company is allowed to sell existing and outstanding shares and does not involve the use of underwriters or investment bankers and other third-party intermediators.
Companies which cannot or do not want to pay for underwriting services often opt for a direct listing. This method also does not entail existing shares’ dilution or lockup periods. In other words, it is considered to be a cheaper alternative to an IPO.
However, the absence of underwriters also takes away the safety of an assurance that the shares would be sold.
Music streaming platform Spotify Technology SA (NYSE:SPOT, SPOT:US) is one of the most prominent companies which used the direct listing process to get publicly listed, back in April 2018. Most recently, online currency exchange Coinbase announced its plans to go public via a direct listing.