One of the hottest venture capitalists on Wall Street is taking yet another exciting company public next week.
Dec. 19, 2020
Social Capital Hedosophia Hldgs Corp II is taking Opendoor public via reverse merger.
Don’t worry about the crazy name, you can just call it IPOB, or you can wait until Monday and call it Opendoor Technologies.
You see, Social Capital Hedosophia is a special purpose acquisition company, or SPAC. A SPAC is a company that is formed with no commercial operations in mind, but with the purpose of raising capital through an IPO. Once the company is public, the funds raised from its IPO get locked into a trust account. Within two years this ‘blank-check company’ must make an acquisition deal or it will face liquidation. This merger deal essentially brings the acquired company public and lists them on a major exchange.
Still with us?
The reason for IPOB’s big jump on Thursday is because its shareholders voted to approve its acquisition of “iBuying” specialist Opendoor Labs. Once the transaction has gone through, Opendoor will IPO via reverse-merger into the already-listed IPOB, and move its shares over to the Nasdaq exchange. Shares in the exciting business will begin trading on December 21 under the new name, Opendoor Technologies, and with a new ticker symbol, OPEN.
“Why does that name sound so familiar?”
You’ve probably heard of Social Capital Hedosophia — that’s the last time I’ll say it, I promise — through Virgin Galactic, the Richard Branson-backed space venture which went public via SPAC last year with IPOA. SCH is headed by famous venture capitalist Chamath Palihapitiya, who will also be adding Clover Health to his list of acquisitions soon via a reverse merger with his other SPAC, IPOC — are you spotting the pattern yet?
Following the wild success of the likes of Snowflake, Airbnb, and DoorDash’s IPOs this year, you might be wondering why anyone would go public via a SPAC? Well, there are a few reasons actually:
- The speed of a SPAC deal gives many smaller private companies the ability to go public without the added time that it takes to go through the SEC filing and review.
- Going public via a reverse merger has the benefit of allowing companies to disclose forward-looking projections rather than their financial history, which is preferable for firms that have not yet posted a profit.
- Floating via a SPAC doesn’t just save money in the short term but also gives the company funds and interest from its trust account, which will allow the newly public firm to get to work without all the fanfare of a traditional IPO.
According to the Wall Street Journal, over $41.2 billion has been raised this year so far by blank check companies — more than triple that of 2019’s total of $13.5 billion (which was itself a record at the time). It looks like the IPO has got some competition going into 2021…
If you want to learn more about SPACs, including the benefits and risks, read our in-depth article here.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above.