In May, the SEC issued an order (here) approving a proposal by The Nasdaq Stock Market LLC (Nasdaq) permitting primary offerings in connection with a direct listing. This allows companies that are going public through a direct listing to raise proceeds in the direct listing, similar to an IPO. This development follows the SEC's prior approval of a similar rule proposed by the New York Stock Exchange (NYSE) that also permits primary capital raises in connection with a direct listing. See Gibson Dunn's Current Guide to Direct Listings (here) and Nasdaq's Direct Listing page (here) for more information.
The key elements of the final Nasdaq rules are similar to the basic tenets of the NYSE's rules. Under Nasdaq's approved rule, to conduct a primary offering in connection with a direct listing, the aggregate market value of publicly held shares immediately prior to listing together with the market value of shares sold in the opening auction must total at least $110 million (or $100 million, if the company has stockholders' equity of at least $110 million), with such market value calculated using a price per share equal to the lowest price of the range established in the related prospectus. For purposes of this calculation, shares purchased by officers, directors and >10% holders in the opening auction are allowed to be included (these shares would not otherwise qualify as “publicly held"). The approved rule (1) requires that all shares to be offered in a primary direct listing be sold within the price range specified in the applicable registration statement, and (2) calculates the value of the listing company's shares based on the minimum price set forth in the range within the registration statement. Nasdaq's approved rule also requires that the offering price in the primary offering remain below the highest price set forth in the registration statement's price range.
Direct listing practice is evolving and presents novel risks. Companies contemplating a direct listing encounter a number of open questions, some of which are highlighted here. Any company considering a direct listing is encouraged to carefully consider the risks and benefits in consultation with counsel and financial advisors. Members of the Gibson Dunn Capital Markets team are available to discuss strategy and considerations as the rules and practice concerning direct listings evolve. Gibson Dunn will also continue to update its Current Guide from time to time to further describe the applicable rules and provide commentary as practices evolve.
Special thanks to summer associate Ezra Brown and associate Evan Shepherd for their work on this post.