Smart Direct Itemizing is a good check for London

Wise CEO and Co-Founder Kristo Kaarmann.

wise

LONDON – Wise, one of the UK’s largest fintech companies, is about to go public. And it will be a big test for London after Brexit.

The money transfer company chose to list its shares directly on the London Stock Exchange, using a rare listing method developed by Spotify in the US three years ago.

The first trades in Wise are expected to begin shortly after 11:22 a.m. London time, according to the company’s prospectus.

What is wise

Wise, formerly known as TransferWise, was founded in 2010 by Estonian friends Taavet Hinrikus and Kristo Käärmann. Frustrated with the high fees for transferring money between the UK and Estonia, they have found a new way to make cross-border transfers at the real exchange rate.

The service proved popular with the British and quickly expanded overseas. Wise claims to have over 10 million customers using its service to send £ 5 billion ($ 7 billion) across borders every month.

Wise competes with established bank transfers like Western Union and MoneyGram, as well as fintech newbies like Revolut and WorldRemit.

Unlike many venture-backed technology companies, Wise has been profitable for years. The company broke even in 2017 for the first time. In fiscal 2021, Wise doubled profits to £ 30.9 million ($ 42.7 million) while revenue climbed 39% to £ 421 million.

Wise’s largest shareholders are founders Käärmann and Hinrikus, who own 18.8% and 10.9% of the company, respectively. The start-up’s largest external investor is Valar Ventures from Peter Thiel, which has a 10.2% stake in the company.

Käärmann and Wise’s early investors will receive extended voting rights for five years after the listing on Wednesday thanks to a planned two-class share structure. Technology giants like Facebook and Alphabet were early pioneers of such ownership structures.

What is a direct listing?

It is an alternative to an initial public offering or initial public offering where a private company offers shares to the public for the first time.

Swedish music streaming service Spotify was an early adopter of the method and went public in 2018 via a direct listing on the New York Stock Exchange. The US messaging app Slack and the cryptocurrency exchange Coinbase have also gone public through direct listings.

Unlike a traditional IPO, companies that are directly listed do not issue new shares or raise fresh capital. This process also eliminates the need for investment bankers to subscribe to the offer. However, Wise is advised by banks such as Goldman Sachs and Morgan Stanley.

Tech founders and venture capitalists say a direct listing can be a more attractive route to the stock market than an IPO because it avoids high subscription fees and potential stock mispricing.

Wise was most recently privately valued at $ 5 billion in a second share sale. Because it is a direct listing, there is no pricing process that companies typically go through in an IPO, and the stock price is determined by the market after listing.

Why does it matter?

Wise’s listing is a huge win for London, which is vying for more technology success stories after the UK has left the European Union.

The British supervisory authorities are currently discussing proposals to relax the London listing regime and to make listing technology companies in the capital more attractive.

It’s also an endorsement of the country’s burgeoning fintech sector, which spawned multi-billion dollar unicorns like Revolut and Checkout.com and attracted $ 4.1 billion in venture capital investments last year.

However, Wise’s car will also be an important test for the city. Wise says its market debut will be the first direct listing of a technology company in London.

“It’s risky,” Russ Shaw, founder of Tech London Advocates, told CNBC. “It really didn’t happen very often, especially with a fintech company.”

But he added, “They are a profitable business. They don’t have the baggage that Deliveroo brought with them.”

Grocery supplier Deliveroo’s IPO was shunned by large institutional investors over concerns about its gig economy model and a two-tier stock structure that gave founder Will Shu over 50% of the voting rights. Deliveroo slumped by up to 30% on the first day of trading.

Despite concerns about governance with such ownership structures, Wise said that its two-class shares are structured so that no existing shareholder holds more than half of the voting rights by owning class B shares alone.

Comments are closed.