January 2018 opened its first week with some eye-popping news. Spotify reportedly filed for a direct listing and bankers quietly filed pricing dates for six IPOs to raise nearly $3.1 billion. And we were only five days into the month.
Spotify’s plans to go public came in the form of a confidential filing with the U.S. Securities and Exchange Commission, as reported a few days ago by the financial media. The press said the music and video streaming platform company will offer its shares as a “direct listing.” The pricing could be in about three months.
This raised some questions.
First, what is a direct listing? And second, “How do I get in on the offering?” Actually, both are easily answered.
Direct Listing Defined
A direct listing is when insider shareholders sell their shares to others. That bypasses the traditional underwriting process: no investment bankers, no underwriting fees and commissions, and the book could be open to anybody with a dollar and a dream.
The direct listing is something like a Dutch auction. In a Dutch auction, any qualified investor can submit a bid stating the exact number of shares they want to buy with the price they are willing to pay. The underwriters gather the bids and set the terms at the highest price (among all the bids) that it takes to sell all the stock in the offering. It is called the clearing price.
Under these terms, anybody who sets their price at what proves to be the clearing price or higher gets stock in the IPO. In a true Dutch auction, there should be no opening pop. The reason is that all the higher bids have been absorbed in the IPO’s clearing price and there would be no aftermarket bids to drive the IPO higher.
The Dutch auctions started to come to market in 1999 with 24 deals getting done. The interest faded out. Between 2008 and 2015, only two Dutch auction IPOs made their debuts.
The average opening-day gain for all 24 Dutch auction IPOs was 0.9 percent. That type of music isn’t going to lure people into the casino.
Let Me In
Until Spotify files its initial public offering terms, we will have to wait to see how the distribution will be made. The directions for the new shareholders should be in the prospectus. That will be in plenty of time to make your bid.
No doubt there will be plenty of media coverage on that.
A Billion-Dollar Week
This week bankers plan to price three IPOs expecting to raise $1 billion. One is Industrial Logistics Properties Trust (ILPT – proposed), another is Liberty Oilfield Services (LBRT -proposed) and the last is Nebula Acquisition (NEBU.U – proposed).
Industrial Logistics Properties Trust, based in Newton, Massachusetts, owns and leases industrial and logistics properties throughout the United States. The company plans to pay a regular quarterly distribution of 33 cents per share, which is $1.32 per year for an annual yield of about 4.5 percent based on the mid-point of its current price range of $28 to $31.
Liberty Oilfield Services, based in Denver, Colorado, is a hydraulic fracturing services company. Its clients are onshore oil and natural gas exploration and production companies active from the Permian Basin to the DJ Basin, the Williston Basin and the Powder River Basin. The company first tried to go public in May 2017 to offer 22.9 million shares at $16 to $19 each, cut the deal to 20 million shares at $12 to $13 each, and then postponed the offering. The new terms are 10.7 million shares at $14 to $16 each.
Nebula Acquisition, based in San Francisco, is a recently formed “blank check” company created to identify, acquire and operate a business in the technology and technology-enabled services sectors that may provide opportunities for attractive long-term risk-adjusted returns.
(For more information about these companies and others on the IPO calendar, please check the profiles found on IPOScoop.com’s website.)
For the week of Jan. 15, 2018, the IPO calendar lists one deal expecting to raise $2 billion. However, when the SEC opens its filing window again on Monday morning, anything can happen.
Disclosure: Neither the author nor anyone else on the IPOScoop.com staff has a position in any stocks mentioned, nor do we trade or invest in IPOs. The author and IPOScoop.com staff do not issue advice, recommendations or opinions.