I can't think of a company as high profile as Spotify ever having gone public without underwriters. Are TMT bankers freaking out over this? Is it a preview of more such offerings to come? Any insight on why the mgmt/key investors chose this path?
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I must have read the wrong article. Thought I saw GS, MS, and Allen & Co.
Correct - they are "advising," but the news I've seen indicates that because the listing will be direct, the IB workload is going to be modest, and the fees will be also.
Since it's a big company bankers want a relationship with, I'd guess that the classic disadvantages of a direct offering (higher risks of underwhelming demand/volume and price volatility) will be nullified as much as possible by banks that are advising despite not being underwriting any stock.
That said, if the banks do too well of a job, it could start a downward trend in on of IB's areas of highest revenue; so there's that too.
Yes, they're a big and well-known company. That's part of the problem. Almost all the best 2018 IPO prospects are by now really big. They're also - in most cases - bleeding edge tech companies that are turned off by an IPO process that banks have done little to modernize.
Because it’s a tire fire of a company that underwriters know they would get sued for once it blows up. They aren’t raising any money in the ipo.
What makes you say that given SNAP and APRN?
SNAP and APRN are what makes him say that. Yeah the IPOs popped at first, but the steep declines since are a serious problem. With these overvalued tech companies that can't generate revenue, investors will start to wisen up and question their longer-term viability of investing. I wouldn't be surprised if GS has faced some serious heat from their clients on those offerings.
Is this even possible? Can you just IPO your company without going through the banks? How would investors even trust the price of the shares etc?
It's called hype. A lot of the VCs and investors in the Silicon Valley area, especially those who enter from absurd fields such as athletics or politics, don't really know anything about finance and hype up the ideas without seeing the tangible value. This sometimes work, but in most cases it fails. Thus the whole market will follow, but in cases such as snapchat, wall street shat on these investors with the real value and showed siegel and evans what their company was really worth.
What? Wall st also tell Facebook what they were really worth when it crashed.
Snapchat is a platform so range of values pretty big.
I honestly don’t see point in ipo anymore. Why can’t the cfo of said company create a power point presentation they put on a blog then have an auditor come up with a bunch accurate financial statements.
Then sell the company ipo thru an iceberg order on an exchange that sells a like 3% of the issuance for a month.
Heck the one thing good about these coins is they are showing how unnecessary bankers are nowadays for ipos
You think investors can't value a company's shares without a bank's help? I'm sure every time a PM at Viking is going long on a company he calls the bankers at GS for their approval first.
If you think valuation is the main reason companies use bankers for IPOs you're sorely mistaken.
Why would investors trust bankers' pricing of a stock? lol what an idiotic question.
I'm in M&A and focus mostly on tech and HC so I know the ECM guys well and have spoken to a few about this:
First of all, let's see what happens with the offering. The recent lawsuit and questions about future profitability and the potential of big M&A by apple, alphabet and amazon to bolster their own streaming services might dampen investor demand. I would be surprised if the lawsuit is as much of a hit as some might think.
Second of all, the deal isn't raising any new equity, it's just allowing some existing stakeholders to sell their stakes. That's different than most IPOs where they need fresh investor capital. The float is also going to be small and they're not huge, so they don't need the type of aggregate investor demand that an Uber, for instance, would likely need. The business model is still viable:
The main reasons companies hire underwriters are LIABILITY, investor credibility, and valuation expertise. You're probably right that the valuation expertise might not apply as much these days, but the first two do. The underwriter's valuations are key to help retail investors and fund managers feel good about buying into a company, even when questions and concerns may exist. The underwriter not only guarantees a price (which can help a lot if the pricing is dicey), but most importantly, takes legal liability for the offering. This is key. Companies will gladly pay in most circumstances just for a rubber stamp and to shift the legal burden of the offering to the banks.
great response! I am doing a research on this topic, do you know what was the float at the moment of the IPO? I calculated 31.3%. The registered shares at that moment 55.7 mln divided by total shares outstanding of 177.1 mln? I am not sure if I am calculating this right any comment would really help!
Read today that Spotify is getting sued for a cool 1.6 bn due to copyright infringement
Lawl
Google IPO all over again
Do you guys think this is the beginning of a new trend with big companies avoiding IPOs entirely?
I guess we'll see on the day it goes public. If it's successful, then it very easily could start shredding the margins on IB underwritings, These companies are consistently looking for new and innovative ways to increase efficiency and decrease costs.
What about if the company actually wants to raise equity (unlike Spotify)?
The trend is well-established; it's more "private markets becoming the new public markets" more than CEOs and CFOs deciding against IPOs. The latter is a product of the former.
Non-brokered private placements/PIPEs happen all the time, albeit typically in the small-mid cap space and for good reason. As previously mentioned, valuation/pricing the shares is a tiny portion of the overall work and I'd say the true "value" of hiring a bank instead of running the process yourself comes from:
Hand a lot of the mundane work(crafting the equity story, working with lawyers/accountants to draft the prospectus, making sure everything is compliant with regulatory bodies, etc) to a third-party so management can focus on their core duties within the company
Access to institutional networks(asset managers, insurance firms, pension funds, etc) and a professional sales team that they wouldn't otherwise have access to, and they typically represent a significant portion of the subscription of any IPO book being built.
Post-IPO market stabilization(arguable whether or not they do a good job at this)
Deference of liability, on everything ranging from the pricing of shares to any errors in the prospectus that may have misled the investor. They are essentially the scapegoat in any odd chance that the deal goes south.
Is it possible for Spotify to execute its direct listing successfully? Quite possibly if there is sufficient public demand. However, many firms are willing to pay the 5-7% commission for the benefits above.
Spotify's IPO-less IPO (Originally Posted: 04/07/2017)
Spotify, one of the largest music sharing platforms, is considering skipping an IPO and only trading on the open market. Apparently, they want to avoid losing out on any profits brought on by an IPO. For example, Snap sold at 17 and then 24 a day later. Spotify wants to avoid this 7 dollar difference. This sounds like a smart idea, but I'm not too familiar with the specifics.
Is this a good move or will it be a major mistake?
Reference: Spotifys IPO-less IPO
I was also thinking about this as I'm not quire sure of the mechanics of it. One thing is that this wouldn't seem to allow for any sort of liquidity in the stock unless a significant number of current owners were looking to sell. It also doesn't bring any primary proceeds into the company unless it's done like an ATM-style offering so I don't quite understand the purpose of this.
Spotify | NYSE (Originally Posted: 05/29/2017)
How do you guys feel about NYSE changing its rules concerning businesses, such as Spotify, being able to be listed publicly without having to undergo the underwriting process? To overcome this Spotify needs to pass a $250 million valuation from a third party advisor.
Well the underwriting process it there for a reason right? (Other than for bankers to collect their fees) It shows that if successful, there's market demand for shares of the company going through the process. Now I'm not saying that people wouldn't buy Spotify shares if it was listed without undergoing the underwriting process, but it may not be worth the risk.
The NASDAQ already does direct listings so from a competitive standpoint it makes sense to me for the NYSE to do so as well. And if companies like Spotify are comfortable with initial volatility and share performance as prices are set truly by supply and demand rather than relying on underwriters to help establish an initial price that seems like a reasonable thing to allow.
Why Spotify Directly Listed As Opposed To a Traditional IPO: (Originally Posted: 04/03/2018)
Happy Thanksgiving Pilgrims!
As a fellow disrupter in the technology sphere and thought leader in global market capacities, I figured I would chime in with my two cents to add value to this organic debate amongst fellow financiers.
Spotify is a company that has been disrupting the music industry in multitudes of realms. As a disrupter of the music industry, it is only deductive that they should leverage their resources to disrupt the wall-street IPO machine as well. In effect, the valuation of their bleeding-edge enterprise shall be discerned through crowd-sourcing thought models. This may signal a hard-stop to the simplicity of wall-street's deliverable buy-ins, as Spotify is intending to take the traditional IPO mechanism and socialize it. Potential push-back is impending, yet Spotify refuses to drink the Kool-Aid quite yet. By doing so they are rejecting the normative culture of working in Silo's and allowing the bankers to collect a fee while assuming that Spotify engages in a limited bandwith leadership structure that disallows them from listing their company themselves. Once you peel back the layers of the onion you'll realize that Spotify's strategy is an actionable and impactful mechanism of adding value in a mutually beneficial way that allows both investors and entrepreneurs to realize their core competencies without reducing the functionality of their cash-flows.
That is the reason that Spotify did not consult the Wall-Street IPO machine for their public listing, at the end of the day.
Curious to hear the monkeys' thoughts on this, and as always feel free to link up with me on LinkedIn. Endorsements of my Leadership Skills and Public Speaking will be mutually reciprocated in a high-impact manner.
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