Tech

Slack valued near $17 billion on secondary market ahead of public offering

Key Points
  • Slack investors are getting up to $28 a share to sell some of their holdings ahead of a public offering.
  • That price values the company at about $16.7 billion.
  • The shares were priced at $11.91 apiece in August at a valuation of just over $7 billion.
Stewart Butterfield, co-founder and chief executive officer of Slack Technologies Inc. at South By Southwest (SXSW) Interactive Festival on Tuesday, March 15, 2016.
David Paul Morris | Bloomberg | Getty Images

As Slack gears up to hit the markets through an unconventional direct listing, stock activity is increasing on the private markets at a price that values the company at nearly $17 billion, according to Forge Global, a firm that matches private companies and their employees with investors.

In Slack's last financing round in August, the company sold shares at $11.91 apiece for a valuation of $7.1 billion. Some early investors and employees have been selling stock at around $28, Kelly Rodriques, CEO of Forge, told CNBC. At that price, they're valuing Slack at close to $17 billion.

Slack, whose cloud-based messaging software lets employees communicate and collaborate, is preparing to go public on the New York Stock Exchange, but not through a typical IPO. Rather, Slack is following Spotify's lead and directly listing its shares. This approach means the company doesn't raise money but allows existing investors to convert their private shares to public stock and sell it without the traditional lock-up restrictions.

The secondary trades can give Slack some visibility into what investors are willing to pay, because with a direct listing, there's a less formal system for price discovery. In an IPO, the lead underwriters take orders from investors and raise the price for the offering based on demand, while also typically baking in a first-day pop.

"Looking back at the last six-month period, we have seen robust demand-side interest in Slack balanced with shareholders ranging from individuals to institutions who are looking at taking some risk off the table," said Rodriques, whose firm is backed by billionaire VC investor Peter Thiel and French bank BNP Paribas.

According to a person familiar with the company's plans, Slack is planning to reveal its listing prospectus as soon as Friday. The Wall Street Journal first reported on the timing.

Demand is rising

Over the past six months, volume has been between $150 million and $200 million worth of trades, based on transactions that Forge has seen on its own platform. While that number would represent a very small portion of total outstanding Slack shares, the inflating price shows that some investors are willing to pay a premium for a stake in the company.

Barrett Cohn, CEO of Scenic Advisement, an investment bank that deals with private companies, says he has also seen plenty of demand for Slack over the last year from institutional investors, but not a lot of supply.

Slack declined comment on the secondary market trades.

The excitement around Slack makes sense given how cloud stocks are performing. Zscaler, Okta, Twilio and Coupa have all more than doubled in the past year, and videoconferencing company Zoom has soared since its IPO last week, trading at by far the highest multiple to sales among all stocks in the group. Slack is often categorized with Zoom, because both have gained viral adoption among teams within companies. This contrasts with the historical model for business software, where a company's IT department directs purchasing and usage.

Source: CNBC

According to multiple sources, Slack has recently loosened restrictions on employees and early investors, allowing them to get some liquidity on the secondary market. Previously the company conducted tender offers to let employees sell some of their stake in a structured fashion.

Bloomberg reported earlier in April that Slack was fetching prices as high as $25 or $26 in private stock deals in the past two months. Sources tell CNBC that they've also seen deals in that price range.

When Spotify debuted in a similar fashion a year ago, it closed at $149.01 after its first day of trading, above the reference price of $132 from the prior evening.

"Spotify was a great model," said Larry Albukerk, founder of EB Exchange, a San Francisco-based firm that connects start-up employees with investors. "There was a lot of trading going on before the IPO. It looks like Slack is following a similar game plan. If this one is successful, I think we'll see a lot more."

One potential candidate is Airbnb, which also has mainstream brand recognition and isn't desperate for money.

Disclosure: Comcast Ventures, the venture arm of Comcast, is an investor in Slack. Comcast owns CNBC parent company NBCUniversal.

WATCH: It remains to be seen how Uber and Lyft will be successful

VIDEO5:3605:36
It remains to be seen how Uber, Lyft will be successful: The Verge's Newton