LONDON — Wise, one of Britain’s biggest fintech companies, is about to go public. And it will be a major test for post-Brexit London.
The money transfer firm has opted to list its shares directly on the London Stock Exchange, using a rare listing method pioneered by Spotify in the U.S. three years ago.
The first trades in Wise are expected to commence shortly after 11:22 a.m. London time, according to the company’s prospectus.
What is Wise?
Wise, formerly known as TransferWise, was founded in 2010 by Estonian friends Taavet Hinrikus and Kristo Käärmann. Frustrated with the high fees they faced sending money between the U.K. and Estonia, they worked out a new way to make cross-border transfers at the real exchange rate.
The service proved popular with Brits and has been expanding fast overseas. Wise claims to have over 10 million customers who use its service to send £5 billion ($7 billion) across borders each month.
Wise competes with wire transfer incumbents like Western Union and MoneyGram, as well as fintech upstarts such as Revolut and WorldRemit.
Unlike many venture-backed tech companies, Wise has been profitable for years. The company broke even for the first time in 2017. In its 2021 fiscal year, Wise doubled profits to £30.9 million ($42.7 million) while revenue climbed 39% to £421 million.
Wise’s biggest shareholders are founders Käärmann and Hinrikus, who own 18.8% and 10.9% of the company, respectively. The start-up’s top external investor is Peter Thiel’s Valar Ventures, which holds a 10.2% stake in the business.
Käärmann and Wise’s early investors will receive enhanced voting rights for five years after Wednesday’s listing thanks to a planned dual-class share structure. Tech giants like Facebook and Alphabet were early pioneers of such ownership structures.
What is a direct listing?
It’s an alternative to an initial public offering, or IPO, where a private company offers shares to the public for the first time.
Swedish music streaming service Spotify was an early adopter of the method, going public via a direct listing on the New York Stock Exchange in 2018. U.S. workplace messaging app Slack and cryptocurrency exchange Coinbase have also gone public through direct listings.
Unlike in a traditional IPO, companies that list directly don’t issue any new shares or raise fresh capital. This process also forgoes the need for investment bankers to underwrite the offering. However, Wise is being advised by banks like Goldman Sachs and Morgan Stanley.
Tech founders and venture capitalists say direct listings can be a more attractive route to the stock market than an IPO, as it avoids paying steep underwriting fees and a potential mispricing of shares.
Wise was last privately valued at $5 billion in a secondary share sale. As it is listing directly, there is no pricing process like the one firms normally undergo with an IPO, and the share price will be determined by the market once it lists.
Why does it matter?
Wise’s listing is a big win for London, which is vying to attract more tech success stories following Britain’s departure from the European Union.
U.K. regulators are currently consulting on proposals to relax London’s listings regime and make it more attractive for tech firms to list in the capital.
It’s also a validation for the country’s burgeoning fintech sector, which has produced multibillion-dollar unicorns like Revolut and Checkout.com and attracted $4.1 billion in venture capital investment last year.
However, Wise’s float will also be a significant test for the city. Wise says its market debut will be the first direct listing of a tech company in London.
“It is risky,” Russ Shaw, founder of Tech London Advocates, told CNBC. “This really hasn’t been done that often, especially with a fintech business.”
But, he added: “They’re a profitable business. They don’t have the baggage that Deliveroo brought to the table.”
Food delivery firm Deliveroo’s IPO was shunned by large institutional investors due to concerns over its gig economy model and a dual-class share structure which gave founder Will Shu over 50% of the voting rights. Deliveroo plunged as much as 30% in its first day of trading.
Despite worries over governance with such ownership structures, Wise said its dual-class shares are structured in such a way that no existing shareholder will hold more than half of the voting rights just by holding class B shares.