Offerpad is the Latest Home iBuying Company Joining the SPAC Frenzy
Numerous iBuying companies have come to the public markets over the past year or so, with Opendoor (NASDAQ: OPEN) being among the most profile entrants. That company merged with Chamath Palihapitiya special purpose acquisition company (SPAC) Social Capital Hedosophia II last year.
Even leading real estate platform Zillow (NASDAQ: Z) (NASDAQ: ZG) jumped into the iBuying market, where a company makes a cash offer to a homeowner for a faster transaction with the hopes of turning around and selling the property for a nice profit after performing renovations, a couple years ago. There’s a new iBuying company preparing to go public: Offerpad.
Why is SPNV Merging with Offerpad?
Offerpad was founded back in 2015 and currently operates in over 900 cities across 16 markets. The company has agreed to merge with Supernova Partners Acquisition Company (NYSE: SPNV), a SPAC that was started by Zillow co-founder and former CEO Spencer Rascoff.
Homeowners can request a cash offer for their homes on Offerpad’s tech platform within just a few minutes and expect to receive one for free within 24 hours. Alternatively, the homeowner can use a variety of Offerpad services to list their homes instead while keeping a back-up offer in their back pocket.
Offerpad has conducted approximately 7 billion transactions to date. The company estimates that it generated $1.1 billion in revenue in 2020 and sales are forecast to grow to $1.4 billion in 2021. This year, Offerpad expects to acquire nearly 6,500 homes and sell over 5,600 homes.
Offerpad’s SPAC Details
The deal values Offerpad at a post-money equity value of roughly $3 billion. Supernova has $403 million in cash in its trust account from its IPO last year, while the SPAC has also lined up an additional $200 million in PIPE (private investment in public equity) financing. Affiliates of Supernova will pitch in another $50 million.
Add it all up, and Offerpad will receive approximately $600 million in net cash proceeds, after paying down some debt as well as covering various transaction expenses. Public investors of Supernova will end up owning roughly 12% of the combined company once the merger closes, which is expected in the second or third quarter.
The Opportunities Ahead
Offerpad estimates that its total addressable market is a massive $1.6 trillion, while iBuying and online penetration represent less than 1% of that opportunity. The company claims to be more capital efficient than larger rivals like Opendoor or Zillow. Over time, Offerpad has also become more efficient with how much time it spends on renovations by optimizing its workforce and standardizing projects.
By the end of 2021, Offerpad plans to be operating in 19 markets, with each market adding $500 million in revenue. Longer term, the company hopes to eventually operate in 48 different markets, grabbing 4% market share of each to generate $23 billion in annual revenue. Growth should accelerate going forward, with Offerpad expanding into 5, 10, and 20 new markets over the next three years, respectively.
SPNV saw a muted reaction with shares slightly above $10 per share, but there’s a lot to like about Offerpad’s public debut.
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