We recently discovered that the special purpose acquisition company, or SPAC, TS innovation acquisitions (NASDAQ: TSIA) plans to go public with real estate technology company Latch. And, in addition to SPAC’s sponsor, real estate firm Tishman Speyer, Latch has attracted the attention of quite impressive investors, including an investment from high-profile SPAC investor Chamath Palihapitiya. In that 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 so excited about it.
Matt Frankel: This is the TS Innovation Acquisition. The ticker symbol is TSIA. I’m not as good at typing and talking at the same time as Dan. I’m going to chat in a second. This is a SPAC that was launched by a large real estate company called Tishman Speyer. Among other things, they are at Yankee Stadium. It was one of their great commercial properties that they got their hands on.
They announced their SPAC. They raised $ 300 million in this SPAC. They are acquiring a company called Latch, which is a real estate technology company. Anyone who observes me a lot knows that I love the real estate space.
Latch is a manufacturer of smart home technologies, specifically smart locks, but that is not the business model. Your business model is, in fact, a software as a service (SaaS) company. They create what is called a complete building operating system for commercial multifamily properties. They want to rent residents and homeowners to automate. For example, when delivery drivers can enter your apartments. If they are blocked, they can enter their apartments by smartphone. They can let their friends in when they are not at home. There are several 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 recipe, it is very small. They would have a hard time selling an IPO directly to the public and raising enough capital to really expand the business. They are getting more than half a billion dollars in cash in this business that values them at just over a billion dollars. A company going public on the traditional route, of that size with that revenue, would not have raised US $ 500 million. I love them as perfect candidates for SPAC.
As I mentioned, they raised $ 300 million in this SPAC, they are receiving $ 500 million in the business. The other $ 200 (million) comes from what is called a PIPE. A private investment in public capital. I would give them a private, mixed audience at times. The leader of PIPE is Chamath Palihapitiya, the famous SPAC investor. I see Dan laughing there, I must have said his name funny.
Dan Caplinger: No it’s not that. I always have fun when Chamath leaves his universe of Hedosophia Capital Social, and throws his fortune into PIPEs from other SPACs than the ones he is sponsoring. It is with this interesting dynamic that the industry is dealing with. It always makes me laugh a little.
Frankel: People who are waiting for him to do his own business with SPAC, it drives them crazy. Especially when it causes Twitter the night before, it announced some other PIPE negotiations.
With this, however, he made some very bold statements. He called it the best software as a service company he has ever seen or invested in. This is a very bold statement by an investor of such a high level. They have a net dollar retention rate, which means how much their customers are paying 154% overtime. The high-growth companies that we cover a lot at Motley Fool will be in the range of 120-130%, and we think that’s fantastic. Therefore, less revenue, great retention. Most of your customers are paying their entire contracts in advance for an average of six years.
The legal statistic now, one in 10 new apartment buildings built in the U.S. in 2019 was built with the Latch system on it. This is very impressive, and is a really high switching cost if the building is constructed with the system in it. This is a very sticky recipe. I like it. I like the fact that there are about 140 million units for lease between the United States and Europe, which are the markets that Latch intends to reach. This is being traded for a small premium, about $ 11.40, the last time I looked, but it was being traded at about $ 17 a few weeks ago. They are very close to the same assessment that PIPE investors obtained. I like this as a long-term game. I love software as a service and real estate, and it kind of combines the two. I really like the SPAC business, and it is mine that has already announced this business.
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