Slack became only the second big company, after Spotify, to invite a free-for-all in its shares on Wall Street. Rather than an IPO, it chose a direct listing, releasing its stock to trade freely and stating just a “reference” figure of $26 a share.
The upstart workplace messaging and productivity platform Slack is going public today on the New York Stock Exchange under the ticker symbol WORK. Rather than follow the tried and true path of a traditional IPO, Slack decided to pursue a “direct listing,” an unorthodox strategy that reduces the company’s reliance on investment banks during the process.
Usually, in an IPO, a company works with a group of underwriters that are orderly consisted of Wall Street investment banks. Underwriting a financial asset protects the company from eventual financial risk. In the case of an IPO, underwriters agree to hold any shares they aren’t able to sell to investors through the offering.
Same as Spotify, Slack decided to collaborate with Goldman Sachs, Morgan Stanley, and Allen & Co. in order to list its shares directly on the NYSE, but not as underwriters.
First, the stock exchange has to determine an “initial reference price.” For example, initial reference price of Spotify was $132.50 a share, at the high end of its trading range. Slack’s reference price, on the other hand, will be $26 a share, which is right in the middle of its $21 a share-to-$31.50 a share range on private markets during the last three months.
Even though a reference price can be the direct offering’s match of an offering price, it’s different from the opening price of the stock. The latter will be determined today by market makers who balance buy and sell orders at the start of the trading day. It can be pretty risky proposition, but if managed right it can go smoothly. There is however a certain concern about who might, or might not be selling.
CNBC analyst Bob Pisani explains that the six largest shareholders (Accel, Andreessen Horowitz, Social Capital, CEO Stewart Butterfield, Softbank, and co-founder Cal Henderson) control about 60% of the stock.
“Some are restricted, but if the majority who are not decide to sit on their shares, supply/demand could be out of whack and the stock could be much more volatile.”
So, depending on how things play out in the coming weeks, it could be a great opportunity for others to disrupt one of Wall Street’s most profitable businesses — or it could kill the idea off once and for all.
Bill Gurley, a venture investor at Silicon Valley firm Benchmark predicted Slack’s direct listing would spark a new era for startup financing. He said:
next“There is no reason whatsoever equities cannot be priced in a blind auction. This is how 100% of IPOs should be done. And hopefully will one day.”