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July 9, 2021

Will Wise’s triumphant LSE debut herald a new era of direct listings in London?

The fintech went public via direct listing rather than IPO, and is celebrating a successful first week of trading. But this route to market will not suit all tech firms.

By Cristina Lago

Fintech unicorn Wise had an uber-successful inauguration on the London Stock Exchange (LSE) this week, going public at a value of £8bn ($12m). The UK-based company, formerly known as TransferWise, became the largest tech listing in LSE’s history by market capitalisation and is the first tech business in the UK to use direct listing instead of an initial public offering (IPO) to go public.

The news has been hailed as a welcome boost for London’s credentials as a destination for tech innovation and investment, particularly in the wake of Deliveroo’s IPO fiasco in March, and experts told Tech Monitor that the success of Wise, which facilitates money transfers for its clients, can have a positive impact on the UK tech scene as a whole and other scale-up businesses looking to follow in its footsteps. But the direct listing route taken by Wise may not be suitable for all tech companies aiming to go public.

What is the difference between a direct listing and an IPO?

There are many ways for private companies to go public and get listed on the stock exchange. One of the most common strategies is the IPO, in which a company creates new shares that are underwritten by an intermediary and then sold to the public.

The underwriters work closely with the company to set the initial offer price of the shares and help with regulatory requirements. They also buy available shares and sell them to investors through their distribution networks. However, IPOs can be an expensive process since underwriters take a percentage of the value of each share as commission.

A less-expensive alternative to IPOs is the route chosen by Wise, the direct listing process (DLP), also known as direct public offering (DPO) or direct placements. It is less costly because it does not use underwriters or other intermediaries, instead the company sells its shares directly to the public. Unlike the IPO, there is no issue of new shares and there is no lock-up period.

A spokesperson for Wise says that direct listing allows the company to bring customers and other like-minded investors into the shareholder base while ensuring continuity of its “deeply ingrained mission” of saving customers currency exchange and transfer fees: “It’s a fairer, cheaper and more transparent way to broaden our ownership, and saves us time and money which we can invest in building products that solve customer problems,” they say.

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However, direct listings are not a method that many companies can afford, says Anne Glover, CEO at deep tech VC fund Amadeus Capital Partners. In fact, she adds that it is only available to very large businesses such as Wise or Spotify, where the company's share register already contains shareholders who are happy to hold in the public markets and be considered 'free float'. “So you can only do it if your share structure is already compatible with being listed, and that's quite rare,” Glover explains to Tech Monitor.

Will more tech companies go public in the UK using direct listing?

Although Wise is the first tech company to use the direct listing to go public in the UK, such listings are not unusual elsewhere. In 2018, Spotify pioneered the process for tech firms after going public on the New York Stock Exchange via direct listing. Other examples include Slack and Coinbase. Russ Shaw, founder of Tech London Advocates and Global Tech Advocates says that seeing Wise’s success in the LSE, other tech companies outside the US may consider following its example.

“With the UK eager to mirror the success of direct listings in the US, several fintech and other tech unicorns are potentially considering this less conventional listings route in the UK later in the year,” Shaw says. “Wise's listing is another feather in the cap of UK fintech and it will be intriguing to watch the role direct listings play out as the UK tech growth story unfolds.”

Although the pace of fintech venture debuts into the public markets has been very high in the US in 2021, the same cannot be said about the UK, according to Robert Le, senior emerging technology analyst at financial data and software company PitchBook. The last public listing of a major fintech company in the UK was Funding Circle in 2018, therefore Wise’s success could set a precedent for UK and non-UK fintech companies alike to publicly list in the LSE. Le names Revolut,, Klarna, Solarisbank and WorldRemit as examples – although he adds the latter is rumoured to be considering a merger with a special purpose acquisition company (SPAC) in the US for its float.

Wise’s success puts the UK and London back in the spotlight as an attractive global hub for tech companies after Deliveroo’s major IPO blow. During its disastrous market debut, Deliveroo’s shares plunged as much as 30% after investors refused to take part over concerns about the start-up’s treatment of its workers and its employment practices. Canadian semiconductor company Alphawave also had a less than stellar debut on the LSE in May, with its value falling 21% on the first day of trading. However, the year's other big tech IPO to date, that of British cybersecurity company Darktrace, has been far more fruitful. Darktrace was valued at £1.7bn when it debuted in April, and at the time of writing its market cap is £3.96bn.

Shaw says the success of Wise is another shot in the arm for the UK as it seeks to cement its position as a global tech hub following its split from the EU. “Wise’s debut is also a big win for the UK, which is vying to attract more tech companies to its stock market after Brexit with reforms to London’s listing rules," he says.

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