Money transfer app Wise made history on Wednesday when it became the first company to forego the traditional IPO process and directly list its existing shares on the London Stock Exchange.
Its journey into uncharted territory seems to have paid off. Shares were priced at £8 a piece at auction on Wednesday morning, giving Wise a £8bn valuation when it floated at 11am, a major upgrade to its £5bn price tag at its last valuation point in July.
Though shares wobbled in first hours of trading, by the end of the day its shares were up 6% at £8.51, making it London’s biggest fintech flotation.
Co-founders Kristo Käärmann and Taavet Hinrikus, who own 18.8% and 10.9% of the company, became Estonia’s first billionaires. Wise’s dual class share structure means the pair will enjoy enhanced voting rights as will the company’s early institutional backers, including Baillie Gifford, Fidelity and Chrysalis Investments.
Direct listings level the playing field for retail investors
Hargreaves Lansdown senior investment and markets analyst Susannah Streeter said Wise’s “smooth landing” is good news for the London Stock Exchange which is trying to cement its reputation as a major destination for tech listings. Though it was home to several big IPOs this year, including Trustpilot and Moonpig, it was also the backdrop for Deliveroo’s disastrous debut.
But Streeter thinks Wise could also inspire other companies to view direct listings as a more palatable alternative to traditional IPOs which are more costly, relying on expensive services from investment banks.
“Direct listings are more of a level playing field for all investors,” Streeter said. “Instead of institutional investors usually being given first dibs, retail investors get an equal bite of the cherry.”
Streeter said more direct listings would be a “welcome development” considering retail investors have been shut out from 97% of IPOs since 2017.
See also: AJ Bell, Hargreaves and II demand greater access for retail investors in IPOs
Uptake in direct listings hinges on Wise’s success
GDIM investment manager Tom Sparke believes Wise will serve as a litmus test for future London direct listings.
“I think many other similar companies in the UK will be watching this keenly – it is the first of its kind to take this step in the UK and the risks are as significant as its £8bn valuation,” Sparke said.
“If it succeeds, as I suspect it might, I think that we will see a stream of similar moves. However, if it does not prove successful it could put its peers off for a long time.”
However, AJ Bell financial analyst Laith Khalaf is sceptical other companies will buck the traditional IPO route.
“I think direct listings are still likely to be few and far between, because most of the machinery of coming to the market involves investment banks who will lead companies towards a book building process, and in many cases won’t even include an offer for retail investors,” he said.
Dual class share structure pros and cons
Wise’s dual class share structure is another point of intrigue.
Historically tech companies have been turned off by the strict rules in the UK which do not allow dual class shares for premium listings.
Baillie Gifford frontman James Anderson, who holds Wise in his £19.2bn trust, has argued the structure is crucial for Wise to scale globally and discourage short-termism.
Speaking on the day Wise revealed its intention to float he said: “For us, the most important single feature is… that they are determined to have differential voting rights, at least for a period of time. To our mind, when you have a shareholder base that is perennially impatient, that becomes even more important to establish in Britain than elsewhere.”
Streeter said Hargreaves Lansdown has concerns about dual class share structures.
“Owning shares with no voting rights means that the company isn’t accountable to its shareholders which flies in the face of the growing importance that is placed on shareholder rights and appropriate governance,” she said.
“With an increasing push to consider ESG credentials, it would also be odd to have a flurry of share classes available to own that did not provide voting options. Being able to vote on issues such as those which fall within ESG considerations promotes investor engagement, which we believe is important to encourage investors to take control of their financial future.’’
