Investing

Digital Real Estate Firm Opendoor Announces Reverse Merger IPO

Privately held Opendoor Labs announced Tuesday morning that the company has entered a definitive agreement with a subsidiary of Social Capital Hedosophia Holdings Corp. II (NYSE: IPOB) for an initial public offering (IPO). The agreement places an enterprise value of $4.8 billion on Opendoor, equal to the company’s fiscal 2019 revenue.

Social Capital is a special purpose acquisition company (SPAC) or, more colloquially, a blank-check company, that came public in April of this year. Financing for the combination includes $414 million in cash from Social Capital’s IPO and a $600 million private investment in public equity (PIPE) stock offering at $10 per share.

The PIPE offering comprises $200 million from “entities affiliated with Social Capital,” $100 million from the firm’s founder and CEO Chamath Palihapitiya, $58 million from Hedosophia, and the remaining funds from existing Opendoor shareholders, Len Blavatnik’s Access Industries and homebuilder Lennar Corp. (NYSE: LEN). Hedosophia is a London-based venture capital firm. New investors in the PIPE offering include funds and accounts managed by BlackRock Inc. (NYSE: BLK) and Healthcare Ontario Pension Plan. Existing Opendoor shareholders have agreed to roll 100% of their equity into the new company.

Following the IPO, which is expected to produce gross proceeds of $1 billion, Opendoor expects to have up to $1.5 billion in cash “to fund operations and support new and existing growth initiatives.” The transaction is subject to approval by Social Capital shareholders and other customary closing conditions. No expected closing date was provided.

Once the transaction is complete, a subsidiary of Social Capital will merge with Opendoor, which will be the surviving entity, and the combined firm will be renamed Opendoor Technologies Inc.

Opendoor currently operates in 21 U.S. markets. Social Capital’s Palihapitiya said the online real estate firm is “transforming the $1.6 trillion residential real estate market by combining a superior user experience, streamlined operations and machine learning to create a seamless digital experience.”

Shares of Social Capital (IPOB) traded up about 18% early Tuesday at $15.17 after setting a new post-IPO high of $16.17 earlier.