It's been an interesting time for real estate IPOs. Companies ranging from mortgage lenders to property technology start-ups are going public in large numbers, through a combination of traditional IPOs and special purpose acquisition companies, or SPACs.
We just learned that the most recent real estate business to go public is smart lock maker Latch, which is going public through a merger with TS Innovation Acquisitions Corp. (NYSE: TSIA), a SPAC backed by property developer Tishman Speyer. Here's what we know about the deal, what Latch does and where it could be heading, and whether this is a company to keep on your radar.
Technically speaking, Latch isn't going public -- at least not in the traditional sense. The company is being acquired by the TS Innovation SPAC. TS Innovations raised $300 million in capital in 2020, and a group of investors (including notable SPAC investor Chamath Palihapitiya) are contributing additional funding of their own -- known as a private investment in public equity, or PIPE.
In all, Latch will receive $510 million in fresh capital as part of the deal. Including this cash infusion, the deal values Latch at $1.56 billion. Once the deal closes (expected in the second quarter of 2021), Latch will trade on the Nasdaq under symbol LTCH.
What does Latch do?
Latch is primarily known as a maker of smart locks. However, the company is so much more than that.
Specifically, Latch is a software-as-a-service (SaaS) company. Its primary product, LatchOS, is a "full-building operating system." It includes the company's smart lock technology but also enables guest and delivery management and allows landlords and residents to manage smart devices such as thermostats, lighting, and more. In short, Latch's system aims to bring rental housing into the 21st century. In addition to selling the devices themselves, Latch's customers pay an ongoing subscription fee to the company for the services.
According to investor Chamath Palihapitiya's one-pager on his Latch investment, he sees a massive opportunity for the company to bring its smart home technology to the 47 million rental homes in the United States and 93 million apartments in Europe. In addition, 1 in 10 new multifamily apartment buildings in the U.S. were built with Latch's products in 2019, and there's a big opportunity to increase this over time, especially with the financial backing of prominent real estate investors like Tishman Speyer.
Latch boasts a 154% net dollar retention rate, which means the average Latch customer spends 54% more than they did a year ago. The average customer agreement is for 6.3 years and most prepay the entire contract in full. In fact, Palihapitiya called Latch the "best SaaS company I've ever seen/invested in."
Should you invest?
Unlike many other SPACs that have recently announced deals, TS Innovation isn't trading at a massive premium to its deal price. For example, Social Capital Hedosophia Holdings V (NYSE: IPOE), which recently announced it was taking fintech lender SoFi public, trades for about 120% more than the SPAC's net asset value. Meanwhile, TS Innovations trades for about 38% over NAV, so you can get into Latch for not too much more than the insiders are paying.
That said, like any fast-growing, newly public company, Latch is likely to be a rather volatile investment, not appropriate for investors who don't have both a long time horizon and a high risk tolerance.
It's important to note that Latch is not profitable (it lost $61 million last year) and is still in its very early stages of growth. But if you're willing to ride out the roller-coaster ride, Latch certainly has some big growth ambitions and could be worth a look.