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Chamath Palihapitiya Calls This SPAC IPO the Best SaaS Company He's Ever Seen

By Matthew Frankel, CFP® and Dan Caplinger - Mar 13, 2021 at 6:18AM

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This real estate technology company could have a massive addressable market opportunity.

We recently learned that special purpose acquisition company, or SPAC, TS Innovation Acquisitions (TSIA) is planning to take real estate technology company Latch public. And in addition to the SPAC's sponsor, real estate firm Tishman Speyer, Latch has attracted some pretty impressive investor attention, including an investment from high-profile SPAC investor Chamath Palihapitiya. In this Fool Live video clip, recorded on March 4, Fool.com contributors Matt Frankel, CFP, and Dan Caplinger discuss what Latch does and why investors seem to be so excited about it. 

Matt Frankel: This is TS Innovation Acquisition. Ticker symbol is TSIA. I'm not as good at typing and talking at the same time as Dan. I'll put it in the chat in just a second. This is a SPAC that was launched by a big real estate firm called Tishman Speyer. Among other things, they have their hands in Yankee Stadium. It was one of their big commercial properties that they had their hands in.

They announced their SPAC. They raised $300 million in this SPAC. They are acquiring a company called Latch, which is a property technology company. Anyone who watches me a lot knows I love the real estate space.

Latch is a maker of smart home technologies, specifically smart locks, but that's not what their business model is. Their business model is really a software-as-a-service (SaaS) company. They create what's called a whole building operating system for commercial multi-family properties. They want to rent residents and landlords automate. For example, when delivery drivers can come into their apartments. If they're locked out, they can get into their apartment through their smartphone. They can let their friends in when they're not home. There's a bunch 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 don't have a ton of revenue right now. If you look at the revenue, it's really small. They would've had a tough time selling a straight IPO to the public and raising enough capital to really grow the business. They're getting over half a billion dollars of cash in this deal that values them at just over a billion dollars. A company going public through the traditional route, that size with that revenue would not have raised $500 million. I love them as a perfect SPAC candidate.

As I mentioned, they raised $300 million in this SPAC, they're getting $500 million in the deal. The other $200 (million) is coming from what's called a PIPE. A private investment in public equity. I'd give them private, public mixed up sometimes. The leader of the PIPE is Chamath Palihapitiya, the famous SPAC investor. I see Dan giggling there, I might have pronounced his named funny.

Dan Caplinger: No, it's not that. I'm always amused when Chamath goes outside of his Social Capital Hedosophia universe, and throws his wealth around in the PIPEs of other SPACs, other than the ones that he is sponsoring. It's this interesting dynamic that the industry is dealing with. That just always makes me laugh a little bit.

Frankel: People who are waiting for him to make his own SPAC deals, that drives them crazy. Especially when he teases it on Twitter the night before that announces some other PIPE deal.

With this one though he made some pretty bold claims. He called this the best software-as-a-service company he's ever seen or invested in. That's a pretty bold statement from such a high profile investor. They have a net dollar retention rate, which means how much their customers are paying overtime, of 154%. The big growth companies we cover a lot at the Motley Fool will have in the 120-130% range, and we think that's fantastic. So lower revenue, great retention. Most of their customers are paying their entire contracts upfront for six years on average.

The cool statistic right now, one out of 10 new apartment buildings constructed in the U.S. in 2019 was built with the Latch system in it. That's pretty impressive, and that's a really high switching cost if the building is built with the system in it. That's pretty sticky revenue. I like that. I like that there are about 140 million rental units between the US and Europe, which are the markets Latch is going to target. This one is trading for a slight premium, about $11.40, the last I looked, but it was trading at about $17 a couple of weeks ago. They're pretty close to the same valuation that the PIPE investors got. I like this one as a long-term play. I love software as a service and real estate, and this kind of combines the two of them. I really like the SPAC deal, and that's mine that has already announced this deal.

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