Softbank-backed Opendoor to go public in $4.8bn merger
Blank-cheque company Social Capital’s shares surge as much as 22%
Opendoor is going public through a merger with Social Capital Hedosophia Holdings 2 in a deal that gives the property technology start-up an enterprise value of $4.8bn.
The deal will provide as much as $1bn in cash, including up to $414m held by Social Capital, the blank-cheque company led by chair Chamath Palihapitiya, according to a statement on Tuesday.
Social Capital’s shares surged as much as 22% to $15.98 in New York.
Opendoor is the latest start-up to go public through a special purpose acquisition company (SPAC). The investment vehicles have gained popularity in 2020, offering a faster route for companies seeking to go public without the scrutiny or risks of an IPO.
The deal marks the latest milestone in a tumultuous year for Opendoor, which buys homes digitally, makes minor repairs and lists the properties for sale. After the pandemic forced the company to pause operations, CEO Eric Wu announced plans to lay off 35% of its staff.
A booming housing market, however, has lifted the tide of residential real estate companies, especially those that have developed technology to let homebuyers and sellers transact in a socially distanced manner. Shares in Zillow Group, Opendoor’s chief competitor, have more than tripled since bottoming out in March.
With mortgage rates at record lows as the Federal Reserve keeps borrowing costs down, Opendoor is positioned to ride the increased demand for housing, according to Palihapitiya.
“That will drive an enormous amount of home ownership,” he said in an interview on CNBC.
Profitability has been elusive for Opendoor, which sold more than 18,000 homes in 2019, generating $4.7bn in revenue and an adjusted loss of $218m before interest, taxes, depreciation and amortisation, according to an investor presentation.
Profit and appeal
While traditional home-flippers make money by buying homes cheaply and marking them up, Opendoor and its competitors rely on smaller margins and high volume. The company plans to expand to 100 markets, up from the 21 it now operates in and is targeting revenue of $50bn a year, the presentation said.
“The trade-off between profitability and broad appeal is an interesting question,” said Tom White, an analyst at DA Davidson & Company. “For these businesses to have the broadest appeal and best shot at widespread adoption by home sellers, they’ve got to get their pricing as competitive as possible relative to a sale through a traditional agent.”
Opendoor was valued at $3.8bn in a March 2019 fundraising round, and at the time said it had raised $1.3bn from investors including SoftBank Vision Fund, General Atlantic, Khosla Ventures, NEA and Norwest Venture Partners.
Social Capital II is a partnership between venture capitalist Palihapitiya and longtime investor Ian Osborne. Last year, Social Capital’s first blank-cheque company agreed to merge with billionaire Richard Branson’s space company Virgin Galactic.
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