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Slack Is Going Public Without an IPO

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Slack Is Going Public Without an IPO

slack ipo

 Slack ipo : After 10yrs of operation, Slack Technologies will publish  its shares on the New York Stock Exchange on Thursday.

Slack ipo price

WORK. And the NYSE has set Slack’s stock reference price, which may help determine where it starts trading, at $26 a share, valuing the company around $15.6 billion.

 

But contrary to  the vast majority of tech companies that publish their shares using an initial public offering, or IPO, Slack  prefers to use a direct offering.

 

Slack’s workplace based  collaboration software is used by 600,000 companies and organizations, and is regarded by many  as an indispensable alternative to traditional means of communications like email.

For mini  investors who are  anxious to own a piece of the company that plays a big role in major workplaces , Slack’s stock debut presents a golden  opportunity this investors must grab.

slack ipo

Here’s how the direct offering will work.

 

Direct offering vs. initial public offering-slack ipo

 

Slack is going public through a direct public offering, also known as a direct listing. It’s a more carefully planned  alternative to IPOs that few large companies considered before Spotify come out with its direct offering in April 2018.

slack ipo date

With  IPO, a company works with a  some of underwriters, typically several Wall Street investment banks. Underwriting a financial asset guards against financial risk. (The term “underwriting” comes from the archaic practice of writing one’s name under the amount of risk taken on marine insurance policies.)

In the case of a stock offering, underwriters agree to hold any shares they aren’t able to sell to investors through the offering.

Slack just  like Spotify, is working with Goldman Sachs, Morgan Stanley, and Allen & Co. to publish its shares directly on the NYSE, but not as underwriters.

slack ipo

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Before the stock begins trading, the stock exchange determines an “initial reference price.” Spotify’s reference price, example, was $132.50 a share,

 

Slack’s reference price  is $26 a share, the NYSE said later on  Wednesday, which is ok in the middle of its $21 a share-to-$31.50 a share range on private markets during the last three months, according to a statement  released by Slack’s S-1 registration statement.

slack ipo

Whats the importance of direct offering?

 

The key benefit of an IPO is to help a company raise money by selling new shares available.  In a direct offering, most existing shareholders are given the option to sell their shares directly into the stock market. These shareholders may include venture capital firms, employees who received stock as compensation, or accredited investors who bought shares in the private secondary markets. No new shares are offered.

 

A direct offering also offers a few other benefits. It avoids underwriting fees, which generally run between 4% and 7% of the total proceeds raised in IPO. It obviates the lengthy roadshow, provided that most institutional investors are already familiar with the company. And it offers less risk of trading volatility. Underwriters often underprice IPOs to create the first-day “pop,” only to see the price slump after the six-month lock-up period expires and insiders sell shares.

 

Will direct offerings become more common?

 

Most companies heading for the public market will still work with underwriters on IPOs, but a select few may opt for direct listings. Airbnb is sometimes mentioned as a potential DPO candidate.

 

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IPOs still offer benefits for companies, mainly the ability to raise new capital and to generate publicity and attention, not just to potential shareholders but to customers as well. Direct offerings can involve more risk—although that risk is lessened if a company doesn’t need to raise more cash, is a household name known to retail investors, and has a group of employees and investors clamoring to sell their shares in the stock market.

 

“The success of Spotify’s direct listing was simply because  Spotify is well-capitalized company with no pressure to raise additional capital, while also having a larger shareholder base that could provide sufficient supply-side liquidity on the first day of trading, as well as a well-recognized brand name and an easily understood business model,” Latham & Watkins, a law firm that worked with Spotify on its offering, wrote in a subsequent case study. “Companies that do not share these traits may not be the right fit for a direct listing.”

 

The number of companies that chase direct offerings may increase in coming years, but only slightly. IPOs will remain the dominant to the stock market though Spotify’s direct listing seems  to work. If Slack’s offering goes smoothly, a few larger,companies may follow its direct path into the public market.

 

With small investors, Slack going public via a direct offering rather than an IPO doesn’t  change much. There may be some initial benefits as the initial price is set, but Slack is still required to announce  its financial information as IPO candidates do. Still, looking at the process Slack is taking to go public is part of the basic things  dthat all investors need to perform.

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