Direct Listings to take centre-stage as Palantir, Asana makes debut

(Bloomberg) — 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 Inc. and Asana Inc. 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, no capital is raised by the company.

Though 2020 was expected to be the year that direct listings went mainstream, no startup in the U.S. has taken the alternative route to market since Slack Technologies Inc. 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 Inc. and DoorDash Inc., are instead pursuing traditional IPOs.

Software Boom

Palantir, the Peter Thiel-backed data-mining startup, could have a market value of more than $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 $20.8 billion to $22.3 billion. Morningstar Inc. also launched its coverage of Palantir last week, estimating the valuation at $28.2 billion.

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

While Asana, like Slack and Spotify Technology SA 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 $12.8 billion of the $102 billion total raised on U.S. 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% from their offer prices based on a weighted average, the 27 software companies among them have gained 78% 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 $3.86 billion and was up 91% as of Friday. Shares of Unity Software Inc., which raised $1.5 billion, had climbed 73%.

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 AG and Jefferies Financial Group Inc. also show up in both prospectuses. Asana is also working with JPMorgan Chase & Co., and its lengthy list of advisers includes Goldman Sachs Group Inc., Allen & Co., Royal Bank of Canada and Citigroup Inc.

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.

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