- Slack is planning to direct list its shares on the New York Stock Exchange in the next few months, The Wall Street Journal says, citing sources.
- Last year, Spotify became the first big technology company to direct list its shares.
- Companies avoid paying fees by direct listing shares, but there are some risks.
The workplace-messaging platform Slack is planning to direct list its shares on the New York Stock Exchange in June or July, according to The Wall Street Journal, citing sources.
Doing so would make Slack the second big technology company after Spotify to bypass a traditional initial public offering.
A direct listing differs from a traditional IPO in that it cuts out the usual underwriting process that involves lining up investors ahead of time and lets the open market play a larger role in setting the share price.
This will allow Slack to avoid paying the hefty fees that are involved in the process, and also can give shares more liquidity by avoiding the lock-up periods associated with going public through a traditional IPO.
Read more: Here’s how a direct listing works.
"When we think about why companies go public, they do it for liquidity, to raise their profile, for capital," John Tuttle, head of global listings at NYSE, told Business Insider in February 2018. "But for those companies that are well-capitalized, all they really need is liquidity."
Still, there are some risks involved with a direct listing. While Slack has name recognition and a private-market valuation of about $7 billion, there is still the chance that demand could be weak without a banking contingency doing the marketing behind the scenes. The process also doesn’t involve underwriters generating interest among investors.
Monday’s report is another blow to the Nasdaq, which lost out on the Spotify direct listing. Last month, the exchange tweaked its rules, allowing it to provide more clarity and to compete with the New York Stock Exchange for direct listings.
"The exchanges want to clarify the rules so that there is no ambiguity that might deter a company from listing on that exchange," Jay Ritter, a finance professor at the University of Florida, told Business Insider.
"It’s unlikely that Spotify is going to be a one-off direct listing. Some other prominent companies are very likely to use the procedure as well."
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