Wise to go public via direct listing: All you need to know about the process

On 2 July 2021, the UK-based fintech company Wise PLC approved the plan to get listed on 7 July 2021.

The company’s prospectus said, “Application has been made to the FCA for all of the Class A Shares to be admitted to the standard listing segment of the Official List of the FCA and to the London Stock Exchange for all of the Class A Shares to be admitted to trading on the London Stock Exchange’s Main Market by way of a Direct Listing.”

With this, the company has joined the club of firms that have gone public through a direct listing route. Naturally, there is lot of curiosity around it now.

What is Wise Plc?

Wise is a UK-based fintech giant, which was formerly known as TransferWise. It was founded in 2010 by Estonian friends Taavet Hinrikus and Kristo Käärmann. As on date, Mr Käärmann, who is also the Chief Executive of the company, now holds an 18.78% stake in the company, while Mr Hinrikus holds a 10.85% stake. The total equity of the fintech stands at GBP285.3 million, while liabilities stand at GBP8.02 billion. The size of the balance sheet, as a result, stands at GBP8.6 billion. In the two years since March 2019, the balance sheet of the company has quadrupled from GBP2.23 billion to GBP8.6 billion. On the other hand, in the same two years, the topline and the bottomline of the company have more than doubled. It claims to have over 10 million customers who use its services to send GBP5 billion across borders each month. Competing with wire transfer biggies like Western Union and MoneyGram, along with fintech newbies such as Revolut and WorldRemit, Wise has been profitable for many years, after breaking even in 2017 – a trend which is very rare in venture capital-backed startups. The VC (venture capital) firms – Valar Ventures and IA Ventures – have substantial stakes in the fintech company.

So, what is direct listing and why is it important?

In a traditional initial public offering (IPO), new shares are created by the company going for a new listing. These shares are then underwritten by the book-runners, and then sold to public. However, some companies choose a direct listing route, in which no new shares are created. In this case, only existing outstanding shares are sold with no underwriters involved. It mostly happens in the cases where companies may not want to dilute existing shares by creating new ones. Another reason for direct listing may be when firms want to avoid lockup agreements associated with an IPO. It also helps the smaller companies, which may, otherwise not be able to afford the brokerage fee.

Has anyone tested direct listing before this?

The history of direct listing goes back to 1984 – or on an economic timescale, it was four recessions earlier. The first company to go for direct listing was the ice cream firm Ben & Jerry in 1984, then raising only US$750,000. But the concept became prominent in 2018, when Spotify – a Swedish audio streaming and media services provider – got listed on the New York Stock Exchange. In 2019, Slack – an American proprietary business communication platform – got listed through this rare mechanism. However, two years later, Salesforce agreed to buy the workplace messaging app for US$27.7 billion (GBP20 billion) in what would be one of the biggest tech mergers in recent years – a move seen to fend larger tech rivals such as Microsoft Corporation (NASDAQ:MSFT). As recently as 2021, Coinbase – which became the first crypto-exchange to get listed – opted for a direct listing route as well.

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