Wall Street’s IPO enemies ready one-two punch

In this news, we discuss the Wall Street’s IPO enemies ready one-two punch.

NEW YORK (Reuters) – There have only been two direct listings on the New York Stock Exchange in the past two years. There will be two more in one day.

Data analytics firm Palantir Technologies PLTR.N and workplace software maker Asana Inc. ASAN.N are expected to debut on the U.S. stock market on Wednesday by bypassing an initial public offering (IPO).

The last direct list was the launch of WORK.N from the workplace messaging platform Slack Technologies Inc. in 2019, a year after the music streaming service Spotify. Technology SA SPOT.N went public without an IPO.

It is a pivotal moment for some investors and business leaders who have pushed to abandon investment banks as intermediaries. For years, they criticized IPOs as big deals that allowed bankers to allot the most shares to their major clients.

“Ever since the IPO process has existed, entrepreneurs and their investors have felt that bankers under-optimize themselves and take too much for themselves,” said Ben Narasin, partner at US venture capital firm New Enterprise Associates.

“If Palantir and Asana are successful, which they should be, more and more companies will seriously revert to direct listing research,” Narasin added.

IPOs have been in tears this year, as companies recorded the stock rally that followed the coronavirus-induced crisis. The companies have launched nearly $ 50 billion in IPOs in the United States so far in 2020, excluding IPOs of Special Purpose Acquisition Companies (SPACs). It has already passed the mark for all of 2019 and is on track to be the busiest since 2014 and the second since 2000.

In 2020, the stock price of a newly listed company rose an average of 38% on the first day of trading, according to data from IPOScoop and calculations from Reuters.

This has fueled further criticism among investors snubbed by investment banks that underwrite IPOs, as well as suspicion among some companies that bankers are leaving money on the table when they go public to help create a trading “pop” on day one.

Phil Hellmuth, a tech angel investor and poker player with more than $ 20 million in career earnings, said in an interview that he tried to buy $ 500,000 in stock in the warehouse company from Snowflake Inc data SNOW.N during its $ 3.36 billion IPO earlier this month.

Hellmuth knocked on the doors of four hedge funds, Silicon Valley acquaintances, Fidelity mutual fund and one of the banks underwriting Snowflake’s listing, but failed to get into what was the biggest IPO of this year. As a result, he missed the game when Snowflake’s shares more than doubled in his debut.

“If I can’t get a coin, the average investor has no chance of getting one,” Hellmuth said.

Snowflake CEO Frank Slootman told Reuters he has no regrets about how the company’s IPO went.

Fidelity said it was not possible to determine why an investor was unable to participate in an IPO without knowing the client’s details.

In a direct listing, no shares are sold in advance, as is the case with IPOs. The company’s stock price in its early days is determined by the orders entering the stock exchange.

The downside is that the companies involved cannot raise funds, although the NYSE and Nasdaq have both asked U.S. regulators to allow them to change their rules to allow companies to sell new shares in a direct listing.

This inability to raise funds has so far dampened enthusiasm for direct listings by many cash-hungry companies, especially during the economic downturn caused by the pandemic.

“I think we were going to see more direct announcements this year, but for COVID-19. Many companies that were considering a direct listing have moved to an IPO for the capital raising aspect, ”said Ran Ben-Tzur, financial markets lawyer at Fenwick & West LLP.

NO MONEY RAISED

Palantir and Asana are two tech companies defying the coronavirus downturn.

Palantir will also be the first direct listing where the majority of shares cannot be sold until the company reports its 2020 results early next year. These lock-in deals are standard in IPOs, but have so far been absent from direct listings and can cause a company to earn a higher valuation.

“Banks have done the math on the impact of not having lock-in deals in a traditional IPO and believe that without a lock-in structure a company won’t be able to rise to a valuation level. as high because there is no shortage of shares ”. Said Ben-Tzur.

For Asana, whose investors will not be subject to any blocking restrictions, one of the reasons the company was drawn to a direct listing was the desire for a more equitable way to price shares, according to one person. close to the file.

Asana declined to comment.

Kevin Hartz, who took over the event ticketing company he co-founded, Eventbrite Inc EB.N, which went public during an IPO two years ago, said in an interview that more and more ‘companies were considering alternative ways to go public, including direct looking listings for a better price discovery process.

“It’s always a very interrupted process for new issues like the Snowflake IPO. By underpricing, this resulted in significant dilution. This is not an optimal outcome for the company or for existing investors, ”Hartz said.

Palantir and Asana have engaged banks to provide financial advice for their direct listings. On the direct listings made to date, a smaller group of banks have shared a smaller pot of fees.

For its 2019 listing, Slack, which was worth around $ 23 billion at the start of operations, expected to pay $ 22.1 million in fees to three financial advisers. By comparison, 26 banks earned $ 85 million in commissions during Snap Inc’s SNAP.N IPO in 2017, which was worth around $ 31 billion at the time of its public listing.

Reporting by Joshua Franklin and Krystal Hu in New York, and Anirban Sen in Bangalore; Editing by Greg Roumeliotis and Lisa Shumaker

Original © Thomson Reuters

Originally posted 2020-09-29 04:26:13.

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