Wise call on London listing could tempt tech back to UK market

8 Jul 2021

Taavet Hinrikus and Kristo Käärmann. Image: Wise

Now the most valuable tech company listed on the London Stock Exchange, Wise could reinvigorate the city’s tech sector appeal.

Fintech giant Wise had a record-breaking start to its direct listing on the London Stock Exchange yesterday (7 July) after being valued at £8.75bn.

Wise’s shares opened at £8 and closed at £8.80, marking a 10pc increase for the company formerly known as TransferWise.

The near-£9bn valuation reached is significantly higher than expected, and has made Wise’s debut the London Stock Exchange’s largest ever technology listing.

Wise began as a cross-border payments service and has gradually expanded its remit to debit cards and accounts. Sources told Reuters that this record-breaking listing could encourage other fast-growing British fintech firms to float.

On Monday (5 July), the UK’s Financial Conduct Authority proposed making it easier for tech companies to list in London to strengthen the capital’s ability to compete with New York and the EU following Brexit.

A first for London

Several tech companies including Deliveroo, Trustpilot and Moonpig also listed in London earlier this year, but Wise is the first to take the direct listing route on the UK market.

With a direct listing, a company doesn’t issue any new shares, but gives current investors the opportunity to sell their shares at a price determined by the market. In the case of Wise, the direct listing opened up a customer shareholder programme called OwnWise, designed to reward customers who buy shares in the company.

While still a rare route to the stock market, some high-profile companies in the US have chosen a direct listing over a more traditional initial public offering (IPO). These include cryptocurrency exchange Coinbase, gaming platform Roblox , workplace messaging app Slack, and music streaming service Spotify.

“The unruffled start to trading should help London’s efforts to maintain its reputation as a fintech hub as it has struggled to attract fast-growing companies keen to list,” Susannah Streeter, an analyst at Hargreaves Lansdowne, told Reuters.

“But now more firms might see direct listings as a good alternative to traditional IPOs which are more costly, needing the input of expensive services from investment banks.”

Wise’s unique and successful debut could signal a turnaround the fortunes of tech companies on the London Stock Exchange after Deliveroo’s underwhelming entrance in March was deemed “the worst IPO in London’s history”.

After Deliveroo’s disaster damaged the English capital’s reputation as a location for tech stocks, Wise’s plans for a direct listing were considered a “big test for London”.

Daniel Turgel, a partner at international law firm White & Case, told Reuters: “It’s definitely helpful to have well-known brands with strong success stories on domestic markets. They are few and far between so far, but the more that come to market the better.”

Smart stock options

The way Wise has brought its employees along on this journey to public trading might also have an influence on future stock market listings.

Wise’s biggest shareholders are its co-founders, Kristo Käärmann and Taavet Hinrikus, who together own almost 30pc of the company. The company also offers stock options to all employees except US taxpayers, to whom it offers restricted stock units (which are intended to more tax-efficient for these particular employees).

This means a significant part of Wise’s business is employee-owned.

“At an £8bn valuation, the [reported] 10pc worker share could mean a £800m payday divided among some 2,000 staff,” said Christian Gabriel, CEO and co-founder of equity management platform Capdesk.

“The Wise [direct listing] will strengthen the business case for employee equity as a performance-driver and promises to be a huge boost for the wider UK and European tech ecosystem.”

‘Big equity paydays stimulate innovation and benefit the wider economy’

Gabriel believes that sharing the wealth of big tech success is necessary to ensure global competitiveness for the UK and the broader European region.

“Employee equity is a powerful tool to attract, motivate and reward talent. What’s more, big equity paydays stimulate innovation and benefit the wider economy by injecting fresh start-up capital into the market that creates new angel investors to fuel the next wave of founders.”

Indeed, Gabriel noted that Wise itself is the product of Skype alumni Käärmann and Hinrikus. In a decade, their company has minted many millionaires among its employees, and more than a dozen have gone on to found start-ups themselves.

Additional reporting by Elaine Burke

Vish Gain is a journalist with Silicon Republic