Today, Social Capital Hedosophia II, the blank-check company associated with investor Chamath Palihapitiya, announced that it will merge with Opendoor, taking the private real estate startup public in the process.
The transaction comes during a wave of market interest in special purpose acquisition companies, or SPACs, often called blank-check companies. They exist as publicly traded entities in search of a private company to combine with, taking the private entity public without the hassle of an IPO.
In this case, the SPAC Social Capital Hedosophia II is combining with Opendoor, a richly-valued private technology company that operates in the real estate market.
“This is one of many milestones towards our mission and will help us accelerate the path towards building the digital one-stop-shop to move,” Eric Wu, co-founder and CEO of Opendoor said to TechCrunch in a statement. “I am grateful for the continued support from my teammates and shareholders and most thankful for the tens of thousands – and I hope soon to be hundreds of thousands – of families, couples and individuals that trust Opendoor with the largest financial decision of their life.”
Palihapitiya did not immediately respond to requests for comment from TechCrunch via phone and e-mail. His press relations team pointed to a release where the Social Capital founder says that Opendoor embodies the vision of the IPO 2.0 platform (a fancy way to describe SPACs).
Big News: $IPOB is merging with @Opendoor and will take them public. More than $1B is being invested to help Opendoor build a legacy company.
This is my next big 10x idea (memo attached).
Tune into @SquawkCNBC today at 8am ET to hear more.
💪🏽💪🏽 pic.twitter.com/6u4ki1PhDj
— Chamath Palihapitiya (@chamath) September 15, 2020
Shares of Social Capital Hedosophia II, which trade under the ticker symbol IPOB, were up around 14% in pre-market trading this morning.
According to a notice associated with the transaction, Opendoor will have an enterprise value of $4.8 billion in the deal, including equity value of around $6.2 billion and around $1.5 billion in cash. Social Capital Hedosophia II will provide “up to” $414 million in cash as part of the deal, while a private investment in public equity transaction, or PIPE, will provide another $600 million.
Some $200 million of the $600 million PIPE, or a third, will be funded by investors in the SPAC, with Chamath Palihapitiya himself providing $100 million.
Palihapitiya is not subtle about his plans to use SPACs to pursue his ambitions to be the next Berkshire Hathaway. He famously brought Virgin Galactic to the public markets through a SPAC, which played a role in the $1.7 billion profit that Social Capital made in 2019.
If not acquiring a public through a SPAC, he’s also used personal capital to take majority stakes in businesses. When describing his appetite for acquisitions, he put it curtly to TechCrunch: “I like businesses that build non-obvious data links.”
The rest of the PIPE will be funded by another Palihapitiya group, some private entities like Access Industries, and what a release hyped as “top-tier institutional investors,” including Blackrock and a pension plan.
A total of $1 billion in cash is expected to be provided in the transaction. Notably all the cash will flow to Opendoor itself, with shareholders in the company “rolling 100 percent of their equity into the combined company,” per a notice. Along with the transaction, Adam Bain, former Twitter COO and founder of 01 advisors, will join the board, CNBC reports.
Opendoor last raised $300 million at a $3.5 billion pre-money valuation in March of 2019. Of that, $1.3 billion was in equity with nearly $3 billion in debt financing. Investors in the company include General Atlantic, the SoftBank Vision Fund, NEA, Norwest Venture Partners, GV, GGV Capital, Access Technology Ventures, SV Angel and Fifth Wall Ventures, along with others.
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