Latham & Watkins has been at the forefront of the development of the direct listing, an innovative “going public” alternative to the traditional IPO, having represented music streaming giant Spotify Technology S.A. in its 2018 direct listing, the first ever, and the financial advisors to messaging platform Slack Technologies in its 2019 direct listing. From a business perspective, the benefits of a direct listing are clear: a company’s outstanding shares are listed on a stock exchange without either a primary or secondary underwritten offering, enabling (but not requiring) existing shareholders, such as employees and early-stage investors, to sell their shares on a stock exchange. Since there is no underwritten offering, a direct listing does not require the participation of underwriters, which eliminates certain features that are typical of a traditional IPO, such as lock-up agreements and price stabilization activities by the underwriters. In the direct listings completed thus far, both registered and unregistered shares (sold in reliance on SEC Rule 144, which permits, in part, non-affiliates to sell unregistered shares) were immediately sold as trading opened, and both companies’ stock had significant investor interest. The success of these direct listings proves that a direct listing is a viable way for companies to “go public” while providing immediate liquidity to employees and other investors.
In this article, we discuss another important advantage of the direct listing: the potential to deter private plaintiffs from bringing claims under Section 11 of the Securities Act of 1933, which imposes strict liability for material misstatements or omissions in registration statements.
