Companies now opting for alternative ways of going public

on Jan 24, 2020
Updated: Mar 11, 2020
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  • Companies are not avoiding going public as a result of some horrible experiences last year. They’re merely changing tack.
  • Slack and Spotify proved that there is an alternative way to go public if you’re not looking to raise funds through an IPO. Both companies went public through a direct listing.
  • Some companies, including Richard Branson’s Virgin Galactic, have used the SPAC route to go public.

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Some have said even in this new decade, IPOs are still so 2019. Correct
as that may be, lessons learnt last year from the IPO markets seem to have carved
a new path for companies planning to go public.

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2019 was one of the most challenging in the history of Initial
Public Offerings: A modest number of companies successfully went public and managed
to meet investors expectations. On the other hand, we saw big unicorns flop on
the first or after days of trading.

Beyond Meat undoubtedly made a memorable debut. For Uber and Lyft, not so good. WeWork only
managed to serve as a lesson to companies planning to go public.

But don’t be mistaken: Companies are not avoiding going public as
a result of last year’s horrible experiences. They’re merely changing tack.

Slack and Spotify proved that there is an alternative way to go
public if you’re not looking to raise funds through an IPO.

 A direct listing allows you
to bypass all the expensive processes involving fund managers’ fees, advertisements,
and roadshows. The two companies recently went public through a direct listing
and are currently trading on Nasdaq.

iHeartMedia, a radio
and billboard firm also directly went public last year.

And this year, online accommodation booking giant Airbnb is expected
to do a direct listing. GitLab CEO has also severally said the company, which
is worth about $2.8 billion might go for a direct listing later this year.

But not all companies can use this route; Large private companies that
don’t require funding are best suited for direct listings.

Other than an IPO and a direct listing, there is a third option.

Billionaire Sir Richard Branson’s Virgin Galactic company recently
went public through what is referred to as a SPAC, which is a specialised acquisition
corporation.

Virgin merged with an already-listed firm that owned no assets.

These types of corporations are sometimes known as “blank checks”
and are typically established by equity firms and venture capitalists.

Most investors deride this mode of listing as it is primarily seen
as a way for sketchy companies to go public.

But Virgin’s shares have since gained more than 40%, proving that the
SPAC route also works.

In the end, investors are only hungry for promising investments regardless
of the mode of listing.

“There
is a lot of energy in the new listing market. Everyone is asking about options.
Do a direct listing? An IPO? Go public through a SPAC?” America’s IPO
leader for EY Jackie Kelley said.

“SPACs
are definitely a more viable option today.”

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