SoFi to go public via a SPAC
The deal is thought likely to raise around $2.40 billion of fresh cash for the business
Online lender SoFi which made its name refinancing student debt is to list, but rather than do so via a traditional IPO, the Unicorn start-up is to reverse into a SPAC or Special Purpose Acquisitions Company, effectively a listed shell.
SPACs proved to be very popular in 2020 and the rush to list the blank cheque acquisition vehicles shows no sign of slowing down in 2021. A look at the US IPO calendar for the first two weeks of January shows no less than 15 SPACs scheduled to come to the market in that time frame.
Last year more than $60.0 billion dollars was raised by the shell companies, including the $4.0 billion raised by hedge fund manager Bill Ackman for his Pershing Square Tontine Holdings vehicle.
SoFi, a business that’s backed by one of Mr Ackman’s rivals, is the first privately owned company to announce its intention to reverse into a dedicated shell company this year. SoFi has been incubated by Dan Loeb’s Third Point Ventures the private equity arm of activist hedge fund Third Point.
Third Point filed with the SEC to launch its own SPAC over the holiday period and the speculation was that SoFi might reverse into that vehicle, once it was up and running. However, that’s not going to be the case.
Instead, SoFi will partner up with Social Capital Hedosophia Holdings Corp V, a blank cheque company formed and listed by former Facebooker Chamath Palihapitiya.
Mr Palihapitiya chalked up another high profile deal when his first cash shell merged with Richard Branson’s Virgin Galactic. Mr Palihapitiya secured a substantial stake in the company and appetite for these type of deals.
SoFi has grown its business by creating a collegiate feel for its platform it calls its customers members and now offers a wide range of financial products alongside debt refinancing.
These include personal and home loans, insurance, small business financing and most recently a SoFi credit card. It has also launched its own investment platform SoFi Invest that offers members active or automated investment, alongside the chance to trade stocks commission-free.
The platform also offers fractional share ownership, ETFs and cryptocurrencies. The cross-selling opportunities seem to have attracted Mr Palihapitiya who said in a statement about the proposed deal that:” SoFi’s innovative, member-first platform has demystified financial services for millions of Americans”
He further added, “The acceleration of cross-buying by existing SoFi members has created a virtuous cycle of compounding growth, diversified revenue and high profitability.”
SoFi gained preliminary approval for a US bank charter back in October 2020 and the chance to own stake in a quoted US bank will also have been an attraction.
SoFi did not provide specific details of its earnings beyond indicating that it expects to generate around $1.0 billion dollars of revenues in 2020 from its 1.80 million registered users. Though it’s not clear how many of these are currently active.
When complete the deal is thought likely to raise around $2.40 billion of fresh cash for the business, with half of that money coming from a so-called PIPE deal.
PIPE standing for Private Investment in Public Equity. Under these deals, investors lend cash to a business but are repaid through the issue of stock which is often priced at a discount. Some illustrious names are participating in this leg of the transaction and include BlackRock and T Rowe Price.
Once the reversal into the SPAC is complete SoFi should have a market cap in excess of US$8.0 billion. Not bad for a business that was formed just 9 years ago.
Why FX and margin trading businesses in London haven’t sought to become multi-product businesses like SoFi is something of a mystery given the opportunity for value creation.
Even the largest of these, IG Group, which has been in business for 46 years, only has a market cap of £3.24 billion a little over half the of the likely value of SoFi once it’s listed.