Every startup wants to grow and succeed, and traditionally that would take one of two routes. Either showing enough potential to be acquired by a larger firm that will run it independently or integrate it with its other business units, thereby giving the startup’s shareholders a windfall and giving the startup’s products the chance for broad market exposure. Or, the startup does it themselves, growing in size and potential until it decides it can “go public” through an initial public offering (IPO). Recently, however, special purpose acquisition companies (SPACs) have emerged as a third option and are growing in popularity in the smart building industry.
“A SPAC is an alternative to a conventional initial public offering (IPO) in which an investor group takes a shell company public through its own IPO and then uses the proceeds from the IPO to acquire a private company, which now becomes the new publicly traded company,” explains Michael Holman of Lux Research. “Investors essentially get to outsource their due diligence to the SPAC sponsor, and the private company gets to bypass the risk and indignities of an IPO roadshow and simply negotiate a price directly with the SPAC sponsor.”
In November 2020, Silicon Valley-based smart window company View announced that it would be going public in Q1 2021 via a SPAC arrangement with Cantor Fitzgerald. In December, another California-based startup — integrated energy storage solution provider — Stem, also declared a SPAC transaction with Star Peak Energy Transition Corporation to take them public. While Toronto-based smart thermostat company Ecobee is also reported to be considering this approach via a merger with a Canaccord blank-check company. Now, smart lock SaaS startup Latch is the latest in a string of smart building-related companies to take the SPAC route.
On the surface, Latch is a smart lock manufacturer offering connected access-control hardware for buildings, but their investor presentation talks up the potential of broader applications. The company's smart lock technology and LatchOS enables guest and delivery management but also allows landlords and residents to manage smart devices such as thermostats and lighting. Latch's customers pay an ongoing subscription fee to the company for the services and they report a 154% net dollar retention rate, meaning the average Latch customer spends 54% than they did the year before.
Latch does compete in the crowded smart home lock market but has found greater success in the apartment buildings space, where real estate developers have seen the cost-cutting and revenue increasing abilities of Latch systems. The company is now looking to expand into a European market with over 93 million apartments. With the influx of funds from its proposed SPAC, Latch intends to take its residential solution into the commercial buildings space.
“Our products have been in the field for many years in multifamily. The usage patterns are going to be slightly different in commercial offices. We think we know how they’re going to be different, but being able to get them up and running and observe the interaction with products in the wild is going to be really important,” says Latch founder and CEO Luke Schoenfelder in an interview about the SPAC approach. “With a standard IPO, you have all of the banks take you out to all of the big investors. We felt like there was an opportunity here to have an extra level of strategic partnership and an extra level of product expansion that came as part of the process.”
The company is set to go public courtesy of a merger with blank check company TS Innovation Acquisitions Corp (TSIA). As far as partners go, Tishman Speyer Properties makes strategic sense. TSIA raised $300 million in capital in 2020, and a group of investors is contributing additional funding via a private investment in public equity (PIPE). As a result, Latch will receive $510 million in fresh capital, which will value Latch at a crazy $1.56 billion! Once the expected deal closes in Q2 2021, Latch will trade on the Nasdaq under the symbol LTCH.
“As a longtime real estate and capital markets investor, Tishman Speyer has helped accelerate many of the proptech innovations reshaping our cities,” said Rob Speyer, president and CEO of Tishman Speyer, who will join Latch’s board. “We launched our SPAC knowing that our expertise and portfolio could power the next generation of innovators on the public stage.”