Perhaps one of the biggest initial public offerings (IPO) for the 2018 year will be Spotify. However, the way that this company has gone about it, most might not have even seen this IPO coming. Spotify is taking what some consider to be a sneaky approach to entering the market and is moving ahead with a direct listing, according to sources familiar with the matter.
A direct listing is a somewhat unconventional way to attempt an IPO, because it does not raise any new capital. Most of the companies that we see in this process are specifically going through IPOs to raise capital, to either pay down debt or for general corporate purposes.
At the same time, this approach would take away the need for a broker to underwrite the IPO, while dodging many of the fees tied to this service.
Most recently, this online music streaming service was valued as much as $19 billion. Even though its market cap pales in comparison, Spotify’s main competition is with Apple and Amazon.
Spotify expects to conduct its direct listing in the first half of 2018. It had previously filed for the listing confidentially with the U.S. Securities and Exchange Commission (SEC), with Goldman Sachs, Morgan Stanley and Allen as underwriters.
Separately, Spotify is in the midst of a lawsuit with Wixen Music Publishers, which is seeking $1.6 billion along with injunctive relief on behalf of artists including the late Tom Petty, Neil Young, Stevie Nicks, The Beach Boys, the late Janis Joplin and others.
Wixen’s claim is not exactly new. Last May Spotify tried to settle a similar class-action lawsuit by offering to pay $43 million to resolve the dispute. The settlement offer has not yet been approved by the court and at a hearing on December 1 the judge in the case said she would need more time to consider the settlement.
Food for thought: Spotify’s plan for a direct listing will save the company millions in investment banking fees, but that could backfire if the IPO craters. Spotify needs a positive ruling on its proposed settlement of the class-action suit. This would give it at least some leverage over the monetary claim demanded by Wixen.