Over the past few months, billions of dollars have been raised in the US through special purpose acquisition companies. With much of that cash being directed towards technology businesses, particularly in the real estate sphere, what does this new boom in fundraising mean for the UK proptech sector?
Some 248 special purpose acquisition companies were launched in the US in 2020, raising almost $83bn (£60bn) for investment. The trend has been continuing in 2021, with 232 already launched, raising almost $75bn, according to SPACInsider. A whopping $1tn of capital is expected to be raised in the US through these so-called blank cheque companies, and they are seemingly hungry for real estate tech.
Proptech businesses are definitely having their heads turned too. Last month, spatial data capture company Matterport was bought by SPAC Gores Holdings VI in a deal which will see it listed as a public company on the Nasdaq with a total enterprise value of $2.3bn. The deal sets the business, founded in 2011, up for major growth.
Matterport, whose platform turns physical spaces into 3D digital twins, has been growing steadily over the past decade. It now has more than 10bn sq ft of space in millions of buildings across 150 countries in its platform and in 2020 saw its revenues increase by 87% to reach $85.9m.
The deal with Gores is set to close before the end of H1 and will see as much as $640m pumped into the expansion of the business.
“We believe the transaction with Gores unlocks the potential of our platform and accelerates our mission to make every building and every space more valuable and accessible,” says Matterport chief executive RJ Pittman.
For Gores, the deal is a no-brainer. “Real estate and the built world are without question among the biggest frontiers ready for digitisation,” says senior managing director Justin Wilson. “And in our view Matterport is the clear market leader in the category, with enormous potential still ahead.”
Crowded sector
Gores may well think that Matterport is the clear market leader, but it is not the only company seeking to digitise and transform the global real estate sector. The commercial real estate market is awash with tech companies.
And currently, the Americans are seeking to capitalise on a fast and easy route to raise funds to snap up opportunities. Alongside Gores, Tishman Speyer, the investment house behind Newmark, Fifth Wall and CBRE have launched SPACs to target proptech.
Could they start targeting UK-based firms looking to scale up and go public?
For start-ups, being swallowed up by a SPAC is a fast and guaranteed route to IPO; for SPAC sponsors, the deal nets them a 20% stake (typically) in the company they buy in exchange for putting up very little of the funding. There are also fewer regulatory loopholes to jump through, making it even more attractive.
Dominic Wilson, proptech investor and expert, says the explosion of SPACs in the US is a positive for UK tech in the sense that it provides an extra incentive to entrepreneurs looking to start up, scale up and exit, and that it gives investors a way to access the immature, but opportunity-filled, proptech space.
“There’s a lot of institutional interest in real estate,” says Wilson. “The challenge has always been the size of the market. This has given everyone a mature market in which to play.”
He does caution, however, that there is a lot of money being raised via SPACs but a dearth of companies to invest in. This is particularly the case in the UK, where proptech is still largely in its infancy, with few companies large enough to catch the eye of a $300m-plus special purchase vehicle.
Brain drain
The flurry of US launches – along with some new SPACs across the Channel in continental Europe – has started to get the UK a little bit nervous about losing its innovative and entrepreneurial tech start-ups, however.
It is certainly a fear that has led Jonathan Hill, chairman of the UK Listings Review, to propose a change in the UK markets to encourage more UK SPACs. In 2020, just four SPACs were listed in the UK, raising a total of £30m – a laughable comparison to the US.
“Although the UK has great strengths in technology and life sciences, too few of the innovations we have seen have led ultimately to UK companies coming to the public markets in London,” says Hill. “Today, we can see the possibilities offered by the strong potential pipeline of tech IPOs if we are able to persuade them of the many advantages of listing in London.
“We cannot afford to miss the opportunity that this represents, either for our future as a financial centre or as a source of returns for investors large and small.”
Hill believes there is a real risk that the UK is losing out to the US on home-grown companies listing in London.
“There is a real danger that the perception that the UK is not a viable location to list a SPAC is leading UK companies, notably fast-growing tech companies, to seek a US – or indeed EU – de-SPAC route for financing, rather than a transaction resulting in a London listing,” says Hill.
Wilson says it’s not just the SPAC craze that tempts tech firms to list in the US – that draw to be Nasdaq or NYSE listed has been around for years. Now, there is just the extra temptation of a big (blank) cheque.
A look at the deals that have already been completed shows a healthy multiplier for those firms reversing into SPACs.
Smart lock and building management software company Latch, which was bought by Tishman Speyer’s first SPAC, TS Innovation Acquisitions, in January, has revenues of just $18m and is loss making. It does not expect to turn a profit until 2024, when it estimates it will be in the black to the tune of just $3m. However, TS Innovation’s acquisition valued it at $1.5bn and gifts Latch $150m of investment to enable it to grow.
And with close to $5bn raised already over the past six months or so by firms with a specific interest in real estate and real estate tech, it is hard not to predict an increasing number of UK and global proptech entrepreneurs looking to SPACs to make their expansion plans a reality.
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