Direct listings to take centre stage as Palantir, Asana debut

[NEW YORK] It's been more than a year since any company chose to go public via a direct listing. This week, there will be two.

Palantir Technologies and Asana are scheduled to make their public market debuts Wednesday, when private investors in each company can start selling their shares on the New York Stock Exchange.

Unlike a traditional initial public offering (IPO), no capital is raised by the company in a direct listing.

Though 2020 was expected to be the year that direct listings went mainstream, no startup in the US has taken the alternative route to market since Slack Technologies went public in June 2019.

Volatile markets, combined with business models that have been disrupted by the Covid-19 pandemic, have left some companies in need of capital and unwilling to try out a less-tested listing path.

Some of the technology unicorns seen as most likely to chose a direct listing this year, such as Airbnb and DoorDash, are instead pursuing traditional IPOs.

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SOFTWARE BOOM

Palantir, the Peter Thiel-backed data-mining startup, could have a market value of more than US$20 billion when it starts trading, analysts have predicted.

MKM Partners' Rohit Kulkarni wrote in a Sept 21 note that it could be valued at US$20.8 billion to US$22.3 billion. Morningstar also launched its coverage of Palantir last week, estimating the valuation at US$28.2 billion.

Asana, which makes workplace management software, has been trading on the secondary market at a value of about US$5 billion, Bloomberg News reported in August.

While Asana, like Slack and Spotify Technology before it, will allow existing investors to sell shares without restrictions when trading begins, Palantir is imposing a partial lockup that will limit how much of their stakes they can sell initially.

There have been plenty of software IPOs for investors to choose from this year. Software companies have raised US$12.8 billion of the US$102 billion total raised on US exchanges this year, according to data compiled by Bloomberg.

While shares of the 279 companies that have gone public in 2020 have risen an average of 31 per cent from their offer prices based on a weighted average, the 27 software companies among them have gained 78 per cent on average, the data show.

SNOWFLAKE RISES

The two largest of that group priced this month, with underwriters on each exercising the so-called greenshoe option to boost the size of the share sales.

Snowflake Inc raised US$3.86 billion and was up 91 per cent as at Friday. Shares of Unity Software, which raised US$1.5 billion, had climbed 73 per cent.

Wednesday will be a busy day for bankers at Morgan Stanley, which has positioned itself as the go-to adviser for direct listings and is working on both Palantir's and Asana's trading debuts. Credit Suisse Group and Jefferies Financial Group also show up in both prospectuses. Asana is also working with JPMorgan Chase & Co, and its lengthy list of advisers includes Goldman Sachs Group, Allen & Co, Royal Bank of Canada and Citigroup.

Before Slack, Spotify in April 2018 was the first major company to go public in a direct listing. Both of those stocks are trading above their so-called reference price - a floor set by the exchange to allow the price discovery process to begin.

Citadel Securities, the market-making firm majority-owned by Wall Street titan Ken Griffin, will be overseeing Palantir's listing, people familiar with the matter have said. The firm, which carved out a niche for itself by acting as a market maker for both Slack and Spotify, will help gauge pricing and demand for the shares and try to maintain smooth trading once the stock opens.

BLOOMBERG