Monday, May 23, 2022

SoFi will go public via SPAC

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The attack on the SPAC continues.

Lending start-up SoFi announced Thursday that it has agreed to merge with Social Capital Hedosophia Holdings Corp V, a blank check company run by investor Chamath Palihapitiya, in a deal valuing the company at $ 8.7 billion.

Backed by investors such as SoftBank and Silver Lake, SoFi got its start in student loans before moving into refinancing home loans and other investment products. The company plans to use a portion of the $ 2.4 billion in cash it will receive from the new deal to finance its expansions, including debt repayment of its $ 1.2 billion acquisition of payment software company Galileo last year.

Nearly 250 SPACs were formed in 2020, breaking the historic record by a moon stroke. There’s a good reason for this surge: Companies see PSPC as a faster way to raise funds and go public than through an IPO, while the creators of PSPC often have a big salary. to bring a business to market. Private equity investor Alec Gores, for example, turned $ 25,000 into $ 80 million after combining one of its many PSPCs with Wholesale united, a mortgage company.

This is thanks to a so-called 20% “promotion”, which gives the sponsors of the agreement, or those who formed the PSPC in the first place, 20% of the actions of the PSPC itself for a price. nominal.

But with more PSPCs than there are viable targets, PSPCs play with this so-called 20% promotion to make themselves more attractive to potential graduates. Backer Bill Ackman’s SPAC removed the promotion entirely, opting instead to receive warrants giving him the ability to purchase shares in the combined company. The 20% was negotiable in the agreements: the median promotion ends up falling around 7.7% per year November study.

Still, the 20% promotion persists primarily as a benchmark in SPAC filings – as it did in Hedosophia Holdings Corp V’s S-1. Here is Lise Buyers, an IPO Group consulting firm, on the subject: “I think the best of the best will be able to keep the 20%. But the performance of the companies merged into Hedosophia will be extremely important in determining whether it gets the 20% promotion or adapts to new realities. “

Palihapitiya has championed this payment in the past. In an interview with the Financial Times, the old one A Facebook executive said: “I just don’t understand why all of a sudden it’s okay for banks to make money, but it’s not okay for other people to make money.”

Under the $ 2.4 billion, investors also contribute some $ 1.2 billion through private investment. Hedosophia (built by Palihapitiya and investor Ian Osbourne) is contributing $ 275 million. Investors including Black rock, Altimeter Capital Management, Durable Capital Partners and Healthcare of Ontario Pension Plan are contributing $ 950 million.

Under the $ 2.4 billion, investors also contribute some $ 1.2 billion through private investment. Hedosophia (built by Palihapitiya and investor Ian Osbourne) is contributing $ 275 million. Investors including BlackRock, Altimeter Capital Management, Durable Capital Partners and Healthcare of Ontario Pension Plan are investing $ 950 million.

Lucinda Shen
Twitter: @shenlucinda
E-mail: lucinda.shen@fortune.com



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