Wise move to undertake dual class share structure in direct listing IPO

Wise move to undertake dual class share structure in direct listing IPO

On 7 July 2021, Wise plc’s class A shares were admitted to the standard segment of the Main Market of the London Stock Exchange (LSE). The company’s initial public offering (IPO) has gained attention for its unusual direct listing, with no fundraising element, in conjunction with the choice to undertake a dual class share structure. Trading opened at £8.00 per share and by close had increased by 10% to ­­£8.80 per share, giving the company a market capitalisation of £8.8bn. Initial market reaction suggests that Wise could be one of the biggest success stories under this structure, which will be welcome news to its early investors, including Silicon Valley’s Adreessen Horowitz and UK based investment firm, Baillie Gifford.

Wise opted for a dual class structure to ensure the company’s vision is retained, which has been fundamental to its success in building the fastest, cheapest and most convenient money-moving platform in the world. The proposed structure allows the company to  block any takeovers using the current shareholders’ retained voting power. In its prospectus, the company stated:

The primary reason for implementing this Dual Class Share Structure is to preserve the stability and continuity of control and strategic direction in the hands of our existing shareholder base during an initial transitional period after Admission… It is therefore intended that our Dual Class Share Structure will promote these objectives by providing enhanced voting rights to those who have been key to our development and have evidenced a commitment to our journey, and will help preserve the stability and continuity of strategic direction during an initial transitional period after Admission.

Currently, dual class share structures are only eligible for a standard listing, hence Wise opting to float on the standard segment. However, the company could soon be eligible for a premium listing and subsequently qualify for inclusion on the FTSE index, following the recommendations of Lord Jonathan Hill in an Independent Review which the government have confirmed they plan to push forward on. The recommendations aim to modernise the UK Listing Rules and make the London Markets more competitive and flexible.  This is particularly the case for tech companies, which the UK hopes to attract, amid competition from exchanges in the US, Hong Kong and Singapore, where dual class structures are permitted (with additional safeguards). The recommendations suggest that dual class share structures should be permitted on the premium listing segment provided additional investor protections are put in place.

The last successful dual class share structure was in 2020, with the Hut Group’s milestone £1.9bn IPO. However, earlier this year the highly anticipated £8.2bn Deliveroo IPO failed to follow in its footsteps (for more on this story, see: Deliveroo plans dual-class share structure IPO and Deliveroo pays the price for employment status of its riders). Although Wise’s IPO suggests a bounce back for support of the dual class share structure option, a major pitfall has proven to be the lack of investor protection inherent in the structure, that allows for preferential treatment of existing shareholders, as evidenced by the investor backlash following the listing of Deliveroo.

Wise’s acknowledgment of the attractiveness of the LSE’s Main Market could turn the tables for London and influence future IPOs from tech companies. The company considered Wall Street as a listing option, but chief financial officer Matt Briers confirmed that ‘London was the choice’  in an interview prior to admission. He continued: ‘London is a great place to access global capital, and it’s also a great place to do a direct listing, a little-known secret that we are about to blow up.’ This view was also supported by Liberum Capital strategist Joachim Klement, who commented: ‘The successful direct listing of Wise is clearly a boost to London’s ambitions as a global hub for tech companies…Wise is a highly profitable and fast-growing challenger to traditional banks, that is what counts for investors’. On its website, Wise lauded the benefits of a direct IPO, stating:

'Wise became a public company through a direct listing in London on 7 July 2021. In contrast to a traditional IPO, a direct listing was the fairer, cheaper and more transparent way for us to broaden our ownership.'

Further information on the Wise IPO can be found in our transaction database, which contains information on over 6,900 public company transactions. Market Tracker will also be reviewing IPO activity in more detail in its upcoming equity capital markets mid-year review, to be published next month.



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