A Bell Rang. People Made Money. Slack’s Non-IPO Wasn’t So Different
(Bloomberg) -- Slack Technologies Inc. is a public company now. How much should you care how it got there?
The business press, myself included, is a bit transfixed by the idea that Slack took an unusual route to the public markets, going the way of a direct listing. It’s new, and we love new things!
Well, kind of new. Slack is the second big company to forgo an initial public offering and opt for a direct listing instead. The corporate software maker is following in the footsteps of Spotify Technology SA. And Spotify was a weird example, with lots of shareholders and a chief financial officer who seems to be an anti-IPO zealot. Not to mention, it’s Swedish!
You can read my colleagues’ explanation of direct listings if you want to understand the wonky ins-and-outs. But I’m here to tell you that for the regular Schwab or Robinhood stock trader and for general observers of companies, not that much is changing.
- Chief executive officers still take selfies of themselves in front of the New York Stock Exchange.
- It’s still a production. Lawyers, PR professionals and bankers are still making money. Don’t cry over the reduced fees.
- The festive self-indulgence of a company making it to the big time hasn’t gone away. Slack hired a three-man band to play jazz tunes and served nitro matcha tea outside the exchange.
- A bell rings.
- When it’s all over, investors can buy and sell Slack’s stock through their same brokerage accounts.
Standing on the floor of the New York Stock Exchange, things felt pretty similar to the Uber IPO—except this one was going well. Sure, the expectations game is a bit different. Bankers succeed if a direct listing stays near its opening price once trading begins. In most IPOs, bankers want a company’s share price to pop.
For the companies themselves, a big difference is that they don’t raise capital. The shares getting scooped up on the first trades all come from existing investors. In an age of huge private fundraising rounds, however, that’s less of an issue. Many technology companies going public have already raised hundreds of millions, if not billions, on the private markets.
The Goldman Sachs and Morgan Stanleys of the world are among those that could suffer the most if more companies follow Spotify and Slack’s lead. Wall Street has grown accustomed to getting a big discount when they buy into a public offering. They’re the ones benefiting the most when a stock pops. All that could go away.
Bankers will ultimately find a way to make money. Overall fees on direct listings are down, but the few banks in the mix are getting a much larger share of them. Allen & Co., Goldman Sachs Group Inc. and Morgan Stanley were listed on both Spotify and Slack. They’re in a pretty good position to say they have the know-how to represent the copycats.
Perhaps the most consequential change in direct listings is the elimination of a lockup period. In the Uber case, for instance, most of the existing shareholders can’t sell for months. Less stock for sale on the market can help keep the price up. But with Slack, shareholders can sell whenever they want.
To some extent, IPOs have already been disrupted. There’s no shortage of private capital available, much of it from investors who traditionally invest in public stocks. Slack is among a group of companies that don’t need to raise any more money and therefore, don’t need an IPO.
That doesn’t mean they’re willing to give up the pomp and circumstance any time soon.
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