A $12 Billion Listing Says Don't Write Off London Yet

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London’s done it: A jumbo technology listing has gone well. The entrepreneurial pair behind Wise Plc — owner of the cross-border payments business formerly known as Transferwise — have smoothly migrated the firm to the public market and are now sitting on stakes valued at over $3.5 billion. The unusual method, a “direct listing” that skips selling a heap of stock to investors in advance of the debut, did not lead to chaos. And the company has secured a valuation that is in the ballpark of listed peers. What’s not to like?

This is an achievement, although it’s not clear who to applaud given the banks involved did a fraction of the work of a conventional initial public offering. After the first-day implosion of shares in takeaway delivery company Deliveroo Plc, and given the U.K. government’s ambition to attract growth companies to London, a success like this was needed.

The direct listing method avoids the risk of a flop because there’s no benchmark price before trading commences. But volatile trading, or a weak first-day valuation, would have been a major setback for the U.K.’s aspirations.

The shares rose smoothly throughout the day. At the 880 pence where they closed, Wise commands an enterprise value of 8.6 billion pounds ($12 billion). The founders should be thrilled with that. It would amount to over 50 times 2023 Ebitda (earnings before interest, taxes, depreciation and amortization), assuming the firm can grow profit on that measure by at least 20% this year and next (matching guidance for revenue growth). There are no perfect comparisons, but such a valuation is a premium to PayPal Holdings Inc. and a discount to Adyen NV and Square Inc.

Note though, this is still a small company financially. While pre-tax profit doubled in the year to March 31, it was just 41 million pounds. And Wise is still best regarded as a payments firm that uses technology to lower costs for customers, rather than as a tech group like a microchip designer.  

Combined with an active six months for conventional IPOs and there is a sense that London’s capital market is emerging from the shadow of the U.S. boom in SPACs (special purpose acquisition companies). Companies raised 9 billion pounds in IPOs in the first half of 2021, the most for the period since since 2014.

But it would be premature for the U.K. to declare job done, or to think that direct listings will catch on. Wise’s strong price is being set in relatively thin trading. It remains to be seen how the share price would react to any attempt to sell a bigger block. Turning billions of dollars of shares into hard cash you can actually spend isn’t always easy. This will stay a niche route to market for companies, reserved for those that don’t need to raise fresh funds and that already have fragmented ownership.

Moreover, the battle to be the leading European venue for growth stocks has barely begun. Amsterdam has stolen a march in fostering a European SPACs market. London is developing its own version of the vehicles and has a chance to establish a more investor-friendly regime than New York’s, but who knows whether these will fly now that the U.S. SPACs market has cooled. Still, with a banner listing and a good crop harvested, London can today savor some success. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

©2021 Bloomberg L.P.

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