Surf Air valuation slashed in first US direct listing in more than a year

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Regional aviation group Surf Air Mobility went public through a direct listing on Thursday at less than half the valuation it received in a private transaction last month, in a deal that highlighted the limits of the recent revival in the US listings market.

Los Angeles-based Surf Air was the first company to complete a direct listing in more than a year. A direct listing allows investors to start trading a stock on an exchange without the company or a big shareholder selling a large chunk of shares, as in a traditional initial public offering.

Its stock started trading on the New York Stock Exchange at $5 a share, giving it an initial market capitalisation of $460mn, and fell a further 40 per cent to $3.15 by the end of the day. 

That marked a sharp discount on the $1.2bn valuation given by alternative asset manager GEM in a fundraising agreed late last month.

Surf Air chief executive Stan Little said the group’s priority was to complete a listing rather than achieve a specific valuation, as it had several commercial contracts and a previously arranged merger that were contingent on it becoming a public company.

The group operates private flights and several regional commuter lines, but has said its long-term focus is to develop electric power train technology to upgrade regional plane fleets.

“Our goal wasn’t the stock price today, it was to open up the deals that are predicated on being public,” Little said, later adding: “We’re playing the long game.”

A series of successful recent IPOs by companies such as Kenvue, Cava and Savers Value Village have raised hopes that the US listings market is recovering after one of the most severe downturns in decades.

The Renaissance IPO Index, which tracks companies that went through IPOs in the previous two years, has gained 44 per cent this year compared with a 36 per cent increase in the Nasdaq Composite index, which is dominated by more well-established growth-focused companies. 

However, the frosty reception for Surf Air showed investors continue to be picky about which companies they are willing to back.

Most recent listings have involved less risky businesses such as profitable consumer companies or carve-outs from larger groups.

Surf Air, in contrast, is expected to be years away from profit, and cautioned in regulatory filings that there is “substantial doubt” about both of its main businesses’ ability to continue as going concerns. 

Still, one person close to the company argued that the fact the deal could be completed at all was an encouraging sign, and would not have been possible a few months ago.

Surf Air had previously tried to go public through a combination with a special purpose acquisition company in 2022, but abandoned the proposed merger last November.

Investors will also be monitoring Surf Air’s longer-term performance as an indicator of whether direct listings can be a successful route to market for small or less well-known groups.

Direct listings have often been touted as a cheaper alternative to IPOs or Spacs since the streaming service Spotify completed the first such deal in the US in 2018, but only a handful of companies have followed.