What does London’s biggest ever tech flotation mean for the sector?

LSE

WISE, formally known as Transferwise, has seen its valuation hit more £8bn following its listing on the London Stock Exchange last week – but what does it mean for the tech space and fintechs across the UK? Business Leader investigates.

Last Wednesday, shares in the payments group began trading at £8 each in one of the country’s most highly-anticipated stock market flotations in more than a decade.

It was actually LSE’s biggest float of the year and London’s largest ever tech listing.

WISE saw its profits hit £421m over the past financial year, and in 2021, the app-based firm moved £54.4bn across borders for more than six million customers.

Goldman Sachs, Morgan Stanley and Barclays all advised WISE on its listing.

Russ Shaw CBE, Founder of Tech London Advocates & Global Tech Advocates comments: “Wise’s £8bn listing today is a triumph for British fintech and the wider tech industry. This is the largest listing on the LSE since Glencore debuted in 2011. In keeping with their modus operandi, the firm took a risk to float unconventionally and as we have seen this morning it appears to have paid off. The direct listing was the first of its kind for a technology company in London and is an indication that UK tech is receiving buy-in across the board.

“As we continue to cultivate a world leading tech ecosystem here in the UK, our ambition to retain tech talent needs to increase in parallel. This will be an essential part of the tech industry emerging as a major economic contributor to our post pandemic recovery.”

Manish Madhvani, Co-founder & Managing Partner of GP Bullhound said: “Despite the fanfare around Deliveroo, London is confirming it’s a top flight destination for tech listings for the world’s most promising digital businesses.

“With a valuation at the top-end of predictions, Wise has captured the imagination of the City with its direct listing. It remains to be seen if direct listings for technology companies will emerge as a trend on the LSE as businesses weigh-up reduced fees with potentially highly volatile debuts.

“The pipeline of tech listings in London is testament to the world leading ecosystem that has been developed in the UK. Future success will be about remaining flexible and creating a favourable regulatory environment for fast-growth, digital IPOs.”

Will the UK see more tech IPOs as a result?

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown spoke to Business Leader about the prospect of increased IPOs as a result of WISE’s success.

WISE may have flown into the stock market blindfold, given that by choosing a direct listing, its share price wasn’t decided in advance, but the payments firm has had a smooth landing, with shares rising since trading began.

There were 47 million trades in the first half hour, pushing the price up by 3% from the opening auction price of 800p (total trades, not trades just through HL). Shares came out of auction at 820p before dropping slightly and then rebounding to 825p by midday. The launch has put a value of the company of around £8bn, a big step up from the £5bn price tag attached to the company by private investors last July.

The unruffled start to trading should help London’s efforts to maintain its reputation as a FinTech hub as it has struggled to attract fast growing companies keen to list. The UK has gone out of floatation fashion with just 5% of companies delivering an IPO choosing London as the launch pad. This particularly worrying because we see IPOs as an opportunity to bring more people to investing for the first time. But now more firms might see direct listings as a good alternative to traditional IPOs which are more costly, needing the input of expensive services from investment banks.

Direct listings are more of a level playing field for all investors. Instead of institutional investors usually being given first dibs, retail investors get an equal bite of the cherry.

More direct listings would be a welcome development given that retail investors have been excluded from 97% of IPOs since 2017.

WISE has made a feature of bucking tradition and disrupting systems ever since it launched in 2011 as Transfer Wise. It now boasts 10 million customers worldwide and has been profitable for the last four years. It’s expanded from a personal peer-to-peer service to offer businesses faster payments solutions and that is an attractive feature of its growth prospects.

But there are plenty of risks ahead: the company has rivals snapping at its heels in the revolutionary world of payments and to stay competitive it may be forced to cut fees faster than it can reduce costs. It has also noted that excessive volatility in currency markets could also affect its profits.

‘A fintech disrupter with a distinct advantage – but banking the ‘unbanked’ will be key to growth’

Dan Thomas, technology Senior Analyst at Third Bridge discusses the impact on the fintech sector.

Wise is a disruptor in the international remittances space which has previously been dominated by international banks and a handful of incumbent wire transfer businesses like Western Union and Moneygram. Wise has a good network of local banking partnerships which helps the business secure more attractive rates for transfers. That said, it’s not inconceivable that competitors like Paypal’s Xoom could replicate these fees if they’re depositing big enough balances with local partners.

Wise doesn’t actually wire money in the same way as a Western Union or Moneygram, rather it holds balances in countries on popular currency routes to sidestep the high fees associated with conventional wire transfers. Xoom’s digital to cash is an attractive solution for banking corridors where recipients are typically unbanked – Xoom allows senders to transfer cash digitally which can then be collected in cash by the recipient. Wise doesn’t offer this solution which could hinder adoption in countries with a high percentage of unbanked individuals. However this trend is improving over time.

Wise has a distinct advantage over peers like Western Union and Moneygram because origination is 100% digital and they don’t have to maintain a network of physical locations to disburse cash. Wise will also be counting on growing its footprint in the much larger B2B cross-border payments space.

How will this announcement impact WISE’s staff?

Wise has seen its listing valued at £8bn, making it one of the biggest in London for over a decade. The founders are set to earn a fortune, but with a significant portion of the business employee owned, 2000 staff will now be enjoying a payout of c.£400,000. Christian Gabriel, CEO and Co-Founder at Capdesk spoke to Business Leader about what it means for the staff.

Wise remains at the heart of the London fintech boom, and its incredible success and growth has shaped the world-beating market we have today. It’s great that Wise has chosen to list here, and even better to learn that such a significant part of the business is employee-owned. At an £8bn valuation, the 10% worker share could mean a £800m payday divided among some 2000 staff. An average payout of £400,000 would be a life-changing amount for most people.

The Wise IPO will strengthen the business case for employee equity as a performance-driver and promises to be a huge boost for the wider UK and European tech ecosystem. Keeping, growing and sharing the wealth of big tech successes here is exactly what’s needed to ensure the region stays globally competitive.

Employee equity is a powerful tool to attract, motivate and reward talent. What’s more, big equity paydays stimulate innovation, and benefit the wider economy, by injecting fresh startup capital into the market that creates new angel investors to fuel the next wave of founders – Wise itself is the product of Skype alumni.

We hope to see this IPO prompt ‘Wise envy’, leading employees to fight for their fair share of equity.

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