We recently learned that the acquisition of special purposes, or SPAC, TS Innovation Acquisitions (NASDAQ: TSIA) plans to launch real estate technology company Latch. And in addition to sponsoring the SPAC, real estate firm Tishman Speyer, Latch has attracted quite an impressive amount of attention from investors, including an investment by sincere SPAC investor Chamath Palihapitiya. Hierin Nar Live video clip, Recorded March 4, Matt Frankel, CFP, and Dan Caplinger, contributors to Fool.com, discuss what Latch is doing and why investors look so excited about it.
Matt Frankel: This is TS Innovation Acquisition. Ticker symbol is TSIA. I’m not that good at typing and talking at the same time as Dan. I put it in the chat within a moment. This is a SPAC introduced by a large real estate firm called Tishman Speyer. Among other things, they have their hands in the Yankee Stadium. It was one of their large commercial properties that they had in their hands.
They announced their SPAC. They raised $ 300 million in this SPAC. They acquire a company called Latch, which is a real estate technology company. Anyone who watches me closely knows that I love real estate very much.
Latch is a manufacturer of smart home technologies, specifically smart locks, but that’s not what their business model is. Their business model is really a SaaS (software-as-a-service) company. They create the so-called a whole building operating system for commercial multi-family properties. They want to automatically rent out residents and landlords. If delivery managers can get into their apartments, for example. If they are excluded, they can enter their apartment via their smartphone. They can let their friends in if they are not home. There are a lot of other applications in smart home technology that can be incorporated into this operating system.
Latch is a perfect example of an ideal candidate for a SPAC acquisition. They currently do not have a ton of income. If you look at the revenue, it is very small. They would have a hard time selling a direct stock market to the public and raising enough capital to really grow the business. They get more than half a billion dollars in cash in this transaction which they value just over a billion dollars. A company that goes the traditional route and is so big with revenue would not generate $ 500 million. I love them as a perfect candidate for SPAC.
As I mentioned, they raised $ 300 million in this SPAC, they get $ 500 million in the deal. The other $ 200 (million) comes from the so-called PIPE. A private investment in public equity. I sometimes give them private, public mixed. The leader of the PIPE is Chamath Palihapitiya, the famous SPAC investor. I see Dan giggling there, I might have pronounced his name funny.
Dan Caplinger: No, that’s not it. I’m always amused when Chamath goes beyond his Social Capital Hedosophia universe and throws his wealth into the PIPEs of other SPACs, other than those he sponsors. It is these interesting dynamics that the industry is dealing with. It always makes me laugh a little.
Frankel: People waiting for him to enter into his own SPAC transactions, which drives them crazy. Especially if he teases it Twitter the previous evening announced another PIPE deal.
With this one, he made some pretty bold claims. He calls it the best software-as-a-service company he has ever seen or invested in. This is a fairly daring statement from such a high investor. They have a net retention rate of dollars, which means their customers pay overtime, of 154%. The big growth companies that we cover a lot at the Motley Fool will be in the range of 120-130%, and we think that’s fantastic. So lower income, great retention. Most of their customers pay their contracts on average six years in advance.
The cool statistic at the moment, one in ten new apartment buildings built in the US in 2019 was built with the Latch system in it. It’s pretty impressive, and it’s a very high switching cost if the building is built with the system in it. This is pretty tough income. I like that. I like that there are about 140 million rental units between the US and Europe, which are the markets that Latch is going to target. This one traded at a slight premium, about $ 11.40, the last time I looked, but it was a few weeks ago at about $ 17. It’s pretty close to the same valuation that PIPE investors got has. I like this one as a long term play. I like software as a service and real estate, and this kind of combines the two. I like the SPAC agreement a lot, and it’s mine that have already announced this agreement.
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