Wise PLC wants to join the London Stock Exchange but it won’t do it the usual way.
Normally, companies undertake an initial public offering (IPO), where advisors decide at what price shares should be sold on the first day after consulting City institutions, in a process called bookbuild.
READ: Wise plans to join London Stock Exchange, posts strong full-year results
Wise looks to cut the middlemen and women as much as possible – just like it does with its international payments – and is set to be the first company ever to pursue a direct listing in London.
In fact, the Shoreditch-based startup, which was formerly known as TransferWise, allows customers to move money internationally without the hefty fees usually required from banks.
No new shares are created as part of a direct listing, so the existing stock will be directly offered to public investors with no intermediary to drum up interest.
It’s a cheaper process as underwriters don’t have to be paid and shares aren’t diluted.
The shares will simply receive a reference price, which is an estimated value from the stock exchange rather than a fixed IPO price, and will be all given to the exchange.
On the first three hours of the first day of admission, the LSE will hold an auction where buyers and sellers give their prices, then the stock will begin trading. Retail investors will be able to join the action via their usual brokers.
“I hope @Wise has opened an alternative avenue to the public markets for other UK technology businesses to ensure we have a thriving tech scene for decades to come"
Our chair @SKellyCEO speaking about Wise and their plans to go publichttps://t.co/EKpXMBVa3G
— Tech Nation (@TechNation) June 17, 2021
The fintech unicorn is expected to be valued around £7bn, with bullish forecasts going as high as £9bn.
Last summer it raised US$319mln (£228mln) in a round that valued it US$5bn (£3.5bn), but it continues expanding.
In the year to 31 March, Wise moved £54.4bn across borders for 6mln active customers, representing yearly growth of 4% between 2019 and 2021.
Looking ahead, the company expects revenue growth to be 20-25% with adjusted underlying margins above 20%.
“Direct listings are more of a level playing field for institutional and retail investors who will be able to buy shares at the same time, when they begin trading on the London Stock Exchange,” said Susannah Streeter, senior investment and markets analyst.
“However, the risk is that not as much interest is drummed up, and there is no guarantee for share sales as it relies purely on supply and demand.”
The hope is to avoid the flop seen for fellow tech company Deliveroo PLC (LON:ROO), which achieved sky-high valuations only to see its shares slump on its market debut.
“When we started Wise we did not think [bad] exchange rates for transferring money was fair. We found a way to do it without the banks and created an alternative solution,” founder and chief executive Kristo Kaarmann was reported as saying by the Evening Standard.
“Here as well, we are addressing a problem and finding a more transparent, cheaper way of doing this with a direct listing. In finance, there is a lot of tradition in place and we maybe don’t remember why we are doing it this way.”
Wise is hoping to involve its customers too with a dedicated shareholder programme, OwnWise, which has opened for pre-applications on Thursday.
Up to 100,000 customers can buy shares and, if they hold them for 12 months, they will receive bonus shares representing 5% of the value of their existing stake, for a maximum value of £100.
The group is also tempting potential retail investors with perks, including a chance to win a trip to its ‘Mission Days’ company conference and a “limited edition Wise swag”.
It also plans to have a dual-class share structure to “support Wise's focus on its mission as it transitions into the public markets”.
It means it wouldn’t be eligible for entry into any of the FTSE indices, analysts at CMC Markets noted, and concentrates voting power in the hands of its owners which means shareholders won’t be able to hold management to account.
"So far this year the London market has seen a somewhat mixed reception to the various IPOs and direct listings, however it is also true to say that some of the air and enthusiasm has come out of the market on both sides of the Atlantic, when it comes to IPO and SPAC valuations," said analyst Michael Hewson.
"Deliveroo flopped primarily because of concerns over working practices, a lack of profits and a dual-class structure for the shares."
If successful, the direct listing may pave the way for a new method of joining the public market.
With the debut pencilled in for next month, Wise is set to be one of the most hotly anticipated news in the summer.