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1 Under-the-Radar SaaS IPO to Watch in 2021

By Matthew Frankel, CFP® - Feb 13, 2021 at 7:07AM

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This smart home technology company might have more potential than investors think.

Dozens of companies have chosen to go public through mergers with special purpose acquisition companies, or SPACs, already in 2021. And it doesn't look like the trend is slowing down. We recently learned that real estate software-as-a-service (SaaS) company Latch will be going public through a merger with Tishman Speyer's TS Innovation Acquisitions Corp (TSIA) In this Fool Live video clip, recorded on Feb. 8, contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss Latch's business and growth opportunity.

Jason Moser: First off, I want to talk about Latch, a software company that I believe helps ensure the connected building, right?

Matt Frankel: Yeah. They're a really interesting play. They're going public by a SPAC merger. They are emerging with Tishman Speyer. It's pretty big real estate company that has a hand in Yankee Stadium, a lot of New York properties that are really big. That's the most famous one I saw on their website. But they've had a hand in a lot of New York properties. They launched a SPAC, they raised $300 million, and just announced that they are going to be taking Latch public.

Latch is a smart home technology company, is the best way I would describe it. They're known for their smart locks. When I went to CES a while ago, I think I saw Latch smart lock that I got a demo of. That's where the name Latch comes from, the lock.

But their big product is their full building operating system. Their mission is to bring rental housing into the 21st century. People can open their apartments with their smartphones, they can control deliveries and visitors, and things like that. There's all kinds of connectivity options that you could integrate there. Their products, you don't buy them as a homeowner. They're installed in the entire building. The building pays for a multi-year subscription to their Latch operating system, and the residents and landlords get to benefit from it. It's a really interesting play.

I know Chamath is mostly known for his own SPACs, the IPOs, IPOE [Social Capital Hedosophia Holdings V (IPOE)], IPOD [Social Capital Hedosophia Holdings IV (IPOD -0.15%)], all those. But he actually led the private investment round for this company, the PIPE as they call it, the private investment in public equity. That wasn't as well publicized, but he is heavily involved in this and he actually tweeted that this is the best software-as a-service company he's ever seen, which that's a bold statement.

Moser: Yeah, it is.

Frankel: It's a very early stage company. They are losing money faster than they're getting revenue at this point. It's worth mentioning they are very early stage. That's why the valuation is low. Latch is getting over $500 million as part of this deal and even after that, they are only valued at $1.5 billion.

Moser: Wow.

Frankel: It's not a hefty valuation. That capital should give them a lot of ammunition to grow and fuel their losses as we go on. But kind of interesting statistics. They had a 154% revenue retention. That's pretty good for a software-as-a-service company. That might be a lot of what he is talking about.

Moser: Typically you see the 120%, 125%, 130% and you think, "Wow, that's strong."

Frankel: So 154% is pretty impressive.

Moser: Not bad.

Frankel: One in 10 new multi-family buildings in the U.S. built in 2019 were built with Latch with their operating system installed. There are 47 million rental units in the United States and another 93 million in Europe. That's a pretty big addressable market. This is one I'm keeping on my radar.

The SPAC is public. It's called TS Innovation Acquisitions, is the company taking it public. Ticker symbol is TSIA. You can trade this now. Technically, the IPO will happen when the merger deal completes. But just like SoFi, you can trade it now. It's trading at a pretty decent premium, but not like some of the other Chamath deals. It's one that I'm keeping on my radar. I'm not ready to pull the trigger yet. As we've talked about before, it takes quite a bit for me to get really interested in an IPO, but this is definitely an intriguing one.

Moser: Yeah, it definitely sounds like it. It's definitely a big market. We've seen Google making a big investment in ADT (NYSE: ADT), for example. Another company I've recommended, (NASDAQ: ALRM) plays in a similar sandbox, so plenty of opportunity there, particularly as 5G buildout rolls out and our infrastructure and connectivity continues to proliferate, there are going to be a bunch of different opportunities in the coming years, and it sounds like Latch could be playing right into that. 

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TS Innovation Acquisitions Corp. Stock Quote
TS Innovation Acquisitions Corp.
Social Capital Hedosophia Holdings Corp. IV Stock Quote
Social Capital Hedosophia Holdings Corp. IV
$9.94 (-0.15%) $0.01
Social Capital Hedosophia Holdings Corp. V Stock Quote
Social Capital Hedosophia Holdings Corp. V

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