1Q 2018 PitchBook Analyst Note: A SPOT of secondary activity
March 20, 2018
PitchBook's latest analyst note analyzes Spotify's choice to utilize a direct listing, its potential short-term ramifications and what it could spell in the long run for other companies electing to go public or seek liquidity events.
In preparation for its direct listing, Spotify has waived its right of first refusal on private secondary share sales to facilitate increased transaction volume. From these trades, Spotify and its advisors are receiving vital information about investor sentiment and a more up-to-date market valuation than the typical private company.
If the price discovery in the private markets turns out to give an accurate prediction of the initial public pricing, we think that direct secondaries will become more common for companies preparing to go public. These transactions also provide existing shareholders the opportunity to sell before the listing, getting rid of “pent-up” demand and potentially reducing early volatility on the public markets
With the decision to pursue a direct listing, Spotify has shirked the need for the full-service investment banking IPO package and opted for an à-la-carte approach to pay solely for what they need. We believe the outcome of this transaction could have long-term effects on the bargaining power between pre-IPO companies and banks.
Based on the range of share prices of Spotify’s private sales in 2018, we’ve estimated Spotify’s market capitalization will fall between $17 billion and $23 billion. As such, there is still uncertainty if the public market valuation will exceed the company’s most recent private valuation of $19 billion.