The Story
A second major tech company successfully joined the public markets last week through an unconventional listing. Slack, which provides workplace instant messaging software, followed Spotify in opting for a direct listing instead of a traditional IPO. The company’s shares soared on its first day of trading on the New York Stock Exchange.
Impact on Businesses and Law Firms
Slack’s successful stock market debut is further validation that a direct public offering is a viable option for tech companies. It’s a process that cuts out the middlemen – the underwriters that set the price and allocate shares to investors in a traditional IPO – allowing Slack to avoid expensive underwriting fees.
But direct listings aren’t suitable for all companies. Unlike traditional IPOs, companies that choose this route don’t raise new money; instead it’s an opportunity for investors and employees to immediately sell their shares to the market thanks to no lock-up period.
However, with it comes the added financial risk of leaving the market to determine the price.
While Slack may not have needed as many financial advisers to follow the IPO process, they will certainly have needed lawyers, and this is a great example of the innovative role that lawyers can play in the financial markets.
In Spotify’s high-profile debut, Latham & Watkins were crucial in liaising with the SEC, setting precedent for which rules applied to a direct listing, and ensuring investors had the relevant information they needed to make an investment.
In fact, Latham’s successful involvement led to a case study that was published by Harvard.
