28 Aug NYSE Allows Companies to Go Public Through “Direct Listings”

On August 26, 2020, the Securities and Exchange Commission approved allowing the New York Stock Exchange to permit “direct listings” of newly public companies. The Nasdaq has had this ability for several years- companies like Spotify took advantage of this alternative method of going public. In a direct listing, sometimes called a self-filing, a company simply files with the SEC for its shares to trade without a concurrent public offering or IPO.

In its original approval for Nasdaq, the SEC did not allow newly listed companies to raise money at the same time as going public. In its new approval for the NYSE, a new private financing can be completed concurrently. In addition, earlier this week the Nasdaq applied to the SEC to expand their approval to permit direct listed companies to raise money as well.

Why is a direct listing attractive? Spotify, for example, had billions of dollars in cash and did not need to raise money as a traditional IPO would. But for a number of reasons they saw benefit to having a publicly traded stock, including facilitating acquisitions by using stock as a form of currency, rewarding executives with equity and the like. So rather than diluting their ownership with the sale of shares in a traditional IPO, not to mention the fees paid to investment bankers, they saw benefit in a direct listing.

Challenges of this process include ensuring that players are in place to provide market support for the stock after going public, something often provided by IPO investment bankers. A company also needs to otherwise qualify for the exchange listing, including the right number of shareholders, stock price and the like. Will this method of going public catch on with the many private unicorns looking at their strategic options? It may indeed, especially now with a strong public market. Stay tuned.