Is Latch Stock a Buy After the SPAC Merger?

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Latch stock will soon be available on the public exchange after a merger was announced with TS Innovation Acquisitions Corp. (NASDAQ: TSIA).

You’re probably more familiar with TS Innovation than you think. Its parent, Tishman Speyer, is the company behind some of the world’s most iconic buildings and complexes, like Yankee Stadium and Rockefeller Center.

Meanwhile, Latch is a 2014 tech startup ushering in a new age of building security technology. It’s worth close to $150 billion.

In theory, this sounds like a match made in heaven. But will Latch stock be a buy after the merger?

We want to uncover some of the details around TS Innovation, a special purpose acquisition company (SPAC), and its chosen target, Latch, to see if the deal is good for investors.

Shares of TS Innovation have climbed over 60% since the SPAC’s IPO in late 2020. Much of that gain is since the SPAC merger was announced in late January.

Latch could still be a monster growth stock. But the shares have already moved quite a bit higher.

Let’s find out if there is any more upside to Latch…

What We Know About Latch

Tishman Speyer is a real estate firm based in New York with operations all over the world. The company has eight regional offices supported by over 100 property and project offices in 29 markets worldwide.

You may not be familiar with the firm, but you are familiar with some of its properties and projects.

It has owned and operated Rockefeller Center in New York since 1996.

Tishman Speyer was responsible for the management and execution of all phases of the design and construction of the new Yankee Stadium that opened back in 2009.

Globally, it owns the Sony Center in Berlin and the eight-building Paris Bourse in the heart of the business district in Paris.

Tishman Speyer has 120 assets worth nearly $57 billion around the world. It is involved in commercial office, residential, mixed use and life science real estate. All in, it has nearly 80 million square feet spread across the United States, Europe, Latin America, and Asia.

It knows the commercial real estate business, including multifamily markets as well as anyone in the world.

Tishman Speyer is both a customer of Latch and a venture stage investor in the company.

Luke Schoenfeld, Brian Jones, Dhruva Rajendra, and Thomas Meyerhoffer co-founded Latch back in 2014.

Initially, it was involved in keyless access to apartment buildings.

The Latch entry system gives tenants access to all the doors they will encounter in the building. The Latch system opens the front door, the garage, the laundry room, and every other door a tenant may need to use.

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The Latch device can be accessed via Smart Phone, Apple Watch, key card, or by using a door code. It works with all tenants, no matter how comfortable they are with various technologies.

From there, Latch moved on to guest entry and package delivery services for apartment buildings. This incorporated Latch intercom, Latch camera, and Latch delivery assistant products to allow for easy access to guests and more efficient package delivery.

It has expanded this to an operating system that works with apps from companies like Google Nest, Honeywell, ecobee, and more to manage temperature controls.

It just recently announced that tenants can use the iPhone’s Siri to open garage doors or gates, hands-free, from their cars.

The Latch operating system gives Latch clear upsell opportunities. It’s an opportunity for disruptive consumer SaaS and Internet businesses to be built right on top of its existing system.

Should You Invest in Latch Stock?

Latch has only penetrated 1% of the existing rental market. It estimates that the total addressable market in the United States and Europe is $144 billion.

Latch has relationships with developers of multifamily housing from small regional operators, up to industry giants like Tishman Speyer and Brookfield. That means it should have strong access to new multifamily construction projects going forward.

The way this deal is structured, existing shareholders of Latch will end up owning 64% of the company. SPAC investors will own 20%, and SPAC sponsors – Tishman Speyer – end up with a total of 4% of the company.

There will also be a $190 million Private Investment in Public Equity (PIPE) offering to firms like D1, Durable Capital, Fidelity, and BlackRock. Well-known SPAC investor Chamath Palihapitiya will also be an investor in the PIPE.

The post-merger Latch will have an enterprise value of about $1.5 billion with over $500 million in cash to pursue growth opportunities.

This is potentially a massive market, and Latch is the early leader.

Ordinarily, we would suggest jumping all over this deal.

The problem is the numbers. We know we are getting 20% of the new company as SPAC investors. With a $1.5 billion enterprise value, that is about $300 million. With TS Innovation shares at $16, the market cap is almost $500 million right now.

Why should we pay $500 million for something we know will be worth $300 million when the deal closes?

Is the company worth 60% more than the valuation being used and the price being paid by TS Innovation to close the deal?

We want to own Latch at some point, but this doesn’t look to us like the right point.