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Morgan Stanley, Goldman Make Their Own Direct-Listing Pitches

Lananh Nguyen and Crystal Tse

(Bloomberg) -- Silicon Valley investors are touting direct listings to startups as a way to sidestep Wall Street banks and the IPO process. The biggest investment banks want to make sure they stay in the mix.

Morgan Stanley is organizing an event about direct listings on Oct. 21 in San Francisco, according to people with knowledge of the program. It will take place at the West Coast outpost of the New York Stock Exchange, the people said, asking not to be identified because the information hasn’t been made public. Goldman Sachs Group Inc. held a session on direct listings during its Private Innovative Company Conference in Las Vegas Thursday.

The gatherings follow a closed-door confab of venture capital firms, investors and entrepreneurs on Tuesday, in which organizers promoted the alternative to initial public offerings that wrests power away from banks and avoids a first-day price pop. In one of this year’s highest profile examples, shares of Beyond Meat Inc. surged 163% on their first day of trading after the company’s May IPO. While investors that took shares in the IPO made a big profit, the day-one price surge suggests it was priced below its actual value.

Under a direct listing, a company makes its shares available for trading on a stock exchange without the formalities of a traditional IPO. That means no road show, no underwriter and no offering price, according to a blog post by John Tuttle, NYSE’s vice chairman and chief commercial officer.

“There’s an understanding that capital raising can be decoupled from becoming a public company, and that’s sparking a lot of questions about how and when a company should go public,” NYSE President Stacey Cunningham said in an interview at an equity-market conference in Washington. “A direct listing is a new tool.”

Representatives for Morgan Stanley and NYSE declined to comment on the Oct. 21 event.

Speakers at the Goldman Sachs conference included Will Connolly, the bank’s head of technology equity capital markets, Spotify Technology SA Chief Financial Officer Barry McCarthy and Greg Rodgers, a partner at Latham & Watkins LLP.

“It was a great event with an interesting blend of founder-led companies matched with some of the best venture-capital investors in the world,” said Jake Siewert, a bank spokesman who moderated the panel.

Some investors and startups are concerned about first-day price surges that often capture headlines, Joe Mecane, head of execution services at Citadel Securities, said Wednesday in Washington.Even as this year featured several flops of high-profile IPOs, first-day pops have generated billions of dollars in gains for investors in U.S. offerings.

Venture capitalists “feel like they’ve gotten shortchanged by the IPO process,” said Mecane, whose firm was the designated market maker on the direct listings of Slack Technologies Inc. and Spotify. The two companies’ chief financial officers will speak at Morgan Stanley conference in San Francisco, one of the people said.

“We are bullish on direct listings,” Colin Stewart, Morgan Stanley’s global head of technology equity capital markets, said in an email. “On the back of Spotify and Slack, we believe every company that is considering going public should be having discussions in the boardroom about the direct listing option.”

Morgan Stanley, this year’s top-ranked underwriter of IPOs globally, worked on those two deals, creating the new role of adviser to the designated market maker. Goldman was also hired as an adviser to both companies. The two banks earned significant fees on the transactions because fewer banks were splitting the fee pool than on a traditional IPO.

“It’s interesting to see people trying different methods of listing,” Hester Peirce, a commissioner at the U.S. Securities and Exchange Commission, said in an interview. “There haven’t really been so many at this point that we have a lot of data, but it’s a trend we’re all watching. I’m watching it for sure.”

The interest in direct listings comes as the IPO outlook is slowing for the rest of the year. Companies interested in selling shares will probably wait for markets to stabilize in 2020, Mecane said.

--With assistance from Liana Baker and Sonali Basak.

To contact the reporters on this story: Lananh Nguyen in New York at lnguyen35@bloomberg.net;Crystal Tse in New York at ctse44@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Steve Dickson, Dan Reichl

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