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Fintech Wise goes public in London, but in a decidedly American fashion

July 7, 2021, 11:45 AM UTC

British money-transfer app Wise has made a strong debut on the London Stock Exchange.

In the first ever direct listing of a tech company on the LSE, the company was valued at a market capitalization of £8 billion ($11 billion), making a big splash in the burgeoning U.K. fintech market following the country’s rocky exit from the European Union.

The listing at 11 a.m. on Wednesday was met with strong investor appetite, with bids ranging from 100p to 1,000p for shares priced at 800p (about $11).

The founders of the company took the company public using a direct listing, which does not involve raising new capital or bringing in new investors like in a formal IPO process. As such, the price was determined through an extended three-hour opening auction, rather than through a traditional book-building process in which a company’s bankers ask institutional investors in the days before the IPO to submit bids for the number of shares and the price they would be willing to pay.

The listing is another big win for London, which has been bending rules to build up its fintech sector following its departure from the EU. Wise (formerly TransferWise) will now join the ranks of other recently marketed multibillion-dollar unicorns, which include Revolut and Checkout.com.

Direct listing

Today’s direct listing does not involve any fresh capital but will allow Wise’s existing shares to traded on the LSE. Kristo Kaarmann, co-founder and chief executive, said the direct listing allowed the company to broaden Wise’s ownership in “a cheaper and more transparent way” than a traditional stock market launch.

Direct listings have become increasingly popular among technology companies in the U.S. The trend began in 2018 when Spotify joined the New York Stock Exchange, which was followed by other household names such as Slack, Coinbase and Roblox.

Wise, however, is the first tech company to complete a direct listing in the U.K.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, noted the direct listing system is “viewed as cheaper and simpler than a traditional IPO” where the process is managed by expensive investment banks who underwrite shares and find institutional investors to buy them.

She adds that there are risks to this method: “not as much interest is drummed up, and there is no guarantee for share sales as it relies purely on supply and demand.” Wise so far has managed to bypass this issue.

London IPO overhaul

The company’s decision to list in London rather than New York is a plus for the U.K. government which has sought to make the country more attractive for fast-growing tech businesses as it finds itself ever more isolated from the rest of Europe.

The U.K.’s Chancellor of the Exchequer Rishi Sunak promised to make London “the world’s most advanced and exciting financial services hub.”

As part of this revamp, the listing is also testing out a proposed change to make listing companies in London easier. The U.K. is seeking to overhaul listing rules by allowing companies with dual-class shares to be admitted to the top tier of the LSE—which the Wise listing is seeking to do.

In many ways, the dual-class listing structure was the demise of food delivery firm Deliveroo’s IPO, which was rejected by many large institutional investors because its dual-class share structure gave its founder Will Shu over 50% of the voting rights.

Faced with worries over governance in such ownership structures, Wise noted that the structure of its shares does not allow for an existing shareholder to hold more than half of the voting rights.

Founding

Wise was founded in 2010 by Taavet Hinrikus and Kristo Käärmann out of frustration from the high fees that came from sending money between Estonia and the U.K. using incumbents WesternUnion and MoneyGram.  

Since then, the firm has amassed 10 million customers worldwide and processed £54 billion (about $74.7 billion) in payments in 2021 alone.

With a low fee structure compared to other cross-border transfer offerings, as well as a growing personal peer-to-peer service that offers businesses faster payments, the company first turned a profit in 2017. In the 2021 fiscal year, Wise doubled its 2020 profits to £30.9 million.

Wise co-founders Käärmann and Hinrikus own 18.8% and 10.9% of the company, respectively, while external investor Peter Thiel’s Valar Ventures holds a 10.2% stake.

Analysts at Chrysalis Investments have predicted the listing could add between 6% on its net asset value.

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