Alternative IPOs Pick Up Steam

Palantir and Asana go public in direct listings as the IPO market heats up.


From biotech to the retail, innovators are exploring alternative paths to public equity offerings. In Septembver, data analytics firm Palantir and workplace software maker Asana both announced they would go public via a direct public offering (DPO), highlighting this vehicle. Music streaming service Spotify and teamwork messaging app Slack had made news with DPOs in 2018 and 2019.

Unlike traditional initial public offerings, direct listings allow a company to sell shares on the stock market without expensive roadshows, underwriters or lock-up periods.

“It is a democratic, fair way of transitioning into a listed company that is fairer to the investors and less diluted and expensive to the company,” says Rod Turner, founder and CEO of Manhattan Street Capital. Turner also advises clients on Reg A+ offerings, another popular alternative to IPOs for small-cap firms aiming to raise up to $50 million in capital.

Introduced on Wall Street in 2018, direct listings were first served up on the London Stock Exchange in 1995. The Hong Kong Stock Exchange used a similar procedure, called “listing by way of introduction,” 20 years ago. In 2010, London-listed insurer Prudential opted for a direct initial offering in Hong Kong for its secondary listing.

“Any company that could benefit from a publicly traded stock, which can bear the costs of doing so and which does not have a current substantial need to raise public financing, should consider this option,” says David Feldman, partner at New York law firm Hiller.

To attract business from more than a few Silicon Valley firms, the New York Stock Exchange and the Nasdaq have proposed allowing firms to raise capital through a direct listing. The markets, however, may need time to digest the change. The Securities and Exchange Commission initially approved the NYSE plan, then put it on hold to review objections from the Council of Institutional Investors, which sought enhanced legal protections.

“Direct listing will grow rapidly, but not at first,” Turner says. “The companies doing it will be the Spotifys of the world, because they have scale already. We will see a gradual adoption and at some point, it will take off exponentially.”

The IPO market is picking up steam after cooling during the initial phase of the Covid-19 pandemic, and with it, the appetite for alternative IPOs. The most recent EY Global IPO report predicts a rebound in the second half of 2020 after the global number of IPOs declined 19% year-on-year to 419 in the first half of 2020 and proceeds fell 8% to $69.5 billion. IPO activity in the US dropped 30% in number and proceeds, according to the EY report.

As confidence revives, Turner says, more companies are asking about Reg A+ listings, including a restaurant group and a company producing a Covid-19 test. Feldman says his firm is looking at direct listings for cannabis companies that find investment banks reluctant to advise them.“I expect in late 2020 or more likely in 2021 to see new momentum,” Turner predicts.


Other alternative IPO structures, too, are expected to attract more attention. EY predicts that special purpose acquisition company (SPAC) offerings will meet or exceed the record set in 2019.

All is not lost for the investment banks, however. Pre-IPO companies are still hiring them to help with the listing process, valuations and private raises, Feldman believes. “I tell clients that unlike with an IPO, you don’t focus on the first day of trading to decide if the offering was successful,” he says. “Developing market support happens over time and what you really care about is how trading looks four to six months after the direct listing.”

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