initial public offering

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Dual class share structures could help lure Europe’s best founder-driven businesses to the London market, but challenges remain.

By Sarah Axtell, Tad Freese, Chris Horton, Rick Kline, Anna Ngo, Koushik Prasad, David Walker, Tom Evans, and Catherine Campbell

Listing of dual class share structures, which give certain owners (usually founders, employees, and pre-IPO investors) enhanced voting rights over other public shareholders, are increasingly common in the US markets as a strong pipeline of founder-driven tech companies goes public. The UK has now seen several dual class share structures, including most recently the £5.4 billion IPO of The Hut Group, which had a “special” share for the founder. With the UK government keen to increase the marketability of UK listings following Brexit, we anticipate that US dual class deal architecture is likely to be featured on a growing number of London listings — a development that could benefit PE firms and founder managers seeking to retain a greater governance role post-IPO.

Cornerstone investments can assist a firm’s overall exit objective, particularly when there are bidders for a portfolio company but no outright buyer.

By James Inness, Tom Evans, David Walker, Sonica Tolani, Connor Cahalane, and Catherine Campbell

Cornerstone investments, which involve taking a stake in an about-to-list company, have been popular in Asia and in Nordic countries for several years, and are becoming a more regular feature in European deals. The £300 million IPO of peer-to-peer lender Funding Circle in November 2018 and the £2.18 billion IPO of payment processor Network International in April 2019 were both completed with cornerstone investments of around 10%.

Why Consider a Cornerstone Investment?

Despite difficult market conditions, we have seen continued interest in IPOs from PE firms, either as a sole exit option or alongside auctions in a dual-track process. Cornerstone investments can assist a firm’s overall exit objective, particularly if a firm attracts bidders for a portfolio company but fails to find an outright buyer. Strong early support from cornerstone investors can help with marketing an IPO to other investors, increasing the likelihood of a successful listing and paving the way for an exit.

By James Inness and Sean Meehan

Latham & Watkins recently advised the largest global music streaming subscription service in the world, Spotify, on its successful New York Stock Exchange (NYSE) listing using a novel direct listing process.

Spotify’s direct listing did not involve a primary or secondary offer. In addition, no underwriters were appointed, no roadshow process was undertaken, and no IPO-specific lock-up agreements were entered into with existing shareholders.

Instead, these pillars of a typical underwritten IPO were replaced with an offer structure based on a purely market-driven approach to price setting with existing shareholders being free to sell all or part of their shares from day one without the usual 180 – 360 day post-admission restrictions. In addition, the roadshow process was replaced with a public investor day that was available to view live on its website by both institutional investors and retail investors. While certain banks acted as financial advisors in respect of the listing, they had no role in advising on investor meetings, facilitating price discovery activities, or conducting after-market stabilisation activities.