Patriot Acquisition Corporation (PTAC)

$523M valuation

Porch to go public at $523M valuation in SPAC deal, marking new era for real estate tech company
BY TODD BISHOP on July 31, 2020 at 6:25 am

LINK:
https://www.geekwire.com/2020/porch-go-public-523m-valuation-spac-deal-marking-new-era-real-estate-tech-company/


Porch’s Seattle headquarters. (Porch Photo)
Porch, a real estate technology venture and home improvement marketplace that has spent four years quietly renovating its own business, plans to become publicly traded through a merger that values the Seattle company at $523 million.

The agreement, announced Friday morning, will combine Porch with PropTech Acquisition Corp., a special purpose acquisition company, or SPAC, as they’re known. The Los Angeles-based “blank check” company went public in November in a $172.5 million initial public offering with the intent of making such a deal.


Porch CEO Matt Ehrlichman. (Porch Photo)
The combined company, based in Seattle, will operate under the Porch name and trade on the Nasdaq under the ticker symbol “PRCH” after the expected completion of the deal in the fourth quarter. Porch co-founder Matt Ehrlichman will remain as CEO and chairman.

The agreement includes a $150 million investment led by Wellington Management Company, leaving the new Porch with no debt and an initial $205 million cash balance.

“For us, it’s a really good match because it accelerates our path to take this company public by a good year,” Ehrlichman said in an interview with GeekWire. “It gets us public faster, gets us really well-capitalized. It’s an exciting opportunity for both companies.”


Porch’s financial results and projections from its investor presentation about the PropTech Merger. (See full slide.)
The investor presentation for the deal discloses Porch’s financials for the first time, showing it growing revenue more than 55% from $36 million in 2018 to $57 million in 2019, with losses of $29 million and $30 million, respectively, based on adjusted earnings before interest, depreciation, taxes and amortization (EBITDA).

Porch expects $85 million in revenue for 2020, narrowing its EBITDA loss to $10 million. It projects $120 million in revenue in 2021, with a EBIDTA profit of $7 million.

SPACs, or blank-check companies, have been surging in popularity as an alternative means for companies to go public, and lucrative transactions for Wall Street banks. SPACs have played a role in 35% of U.S. IPO filings so far this year, according to a report this week by Silicon Valley Bank.


Special purpose acquisition companies, which raise funds based on acquisition goals, have become an increasingly popular mechanism for IPOs. (Silicon Valley Bank, State of the Markets, Q3 2023.)
PropTech Acquisition Corp. is led by co-CEOs Thomas Hennessy and Joseph Beck, two Los Angeles-based investors who worked together previously as senior investment managers at the Abu Dhabi Investment Authority.

“Porch aligns well with the objectives laid out in our property technology investment thesis,” Hennessy said in a news release announcing the deal. “It brings significant innovation to the residential real estate industry by delivering critical home services in a scalable, software-based platform.”


Key metrics from Porch’s investor presentation on the PropTech deal. (See full slide.)
The Seattle company has reinvented itself in recent years as a provider of enterprise software to home services companies in areas such as home inspections, moving, real estate, and insurance. Porch says 11,000 companies use its software, offered through Porch brands such as HireAHelper and Inspection Support Network.

Companies can pay recurring fees to use the software, or they can use the software for free if they agree to provide Porch with access to information about home buyers. The investor presentation for the merger describes this latter scenario as the company’s preferred option, saying customers than share data are six times more valuable to Porch than if they paid for the software.

Porch uses that information as a strategic advantage, offering to serve as a concierge to those homebuyers at a time when they are making major purchase decisions. Porch connects homebuyers to movers, insurance providers, TV/internet companies and others, and collects transaction fees on sales it facilitates.

“Utilizing our software companies to gain early access to homebuyers is certainly unique,” Ehrlichman said on a conference call with investors Friday morning, explaining that most service providers get this data later in the process, when homebuyers file change-of-address forms and get flooded with offers. “Porch gets access to these consumers approximately six weeks earlier, and that early access is a critical component of our competitive advantage.”

The company says more than 65% of U.S. residential properties bought or sold from August 2019 through January 2020 were processed through its system, and it had call and marketing rights for 27% of U.S. homebuyers.

Porch has been building market share in software and home services through a series of acquisitions in recent years. (One of those acquisitions, L.A.-based Kandela, sued Porch in May for $11.5 million, alleging that the deal was structured to prevent a promised earnout. Ehrlichman said at the time that the startup “oversold” its ability to achieve the milestones.)

Porch’s merger with PropTech is the latest chapter in a seven-year startup saga. Founded in 2012, Porch raised more than $120 million in venture capital over its lifetime as a privately held company from investors including SVAngel, Valor Equity Partners, Founders Fund, Battery Ventures, Moderne Ventures, and others.


In its early days as a company, Porch partnered with Lowe’s Home Improvement stores, which referred customer to Porch’s home services marketplace. (File Photo)
Another investor was Lowe’s Home Improvement, which was one of Porch’s key early partners, offering home improvement services to its customers via the Porch marketplace early in the company’s history. Ty Pennington, the former host of “Extreme Makeover: Home Edition,” took a small stake in the company at one point.

[Update, 11 a.m.: Porch’s latest funding round came in January, when the company raised $20.6 million. We’ve asked the company to comment on reports that it made job cuts around the same time. Porch told us earlier today that it won’t be making cuts in conjunction with the merger, and will be hiring and growing. The company also received a Paycheck Protection Program loan between $5 million and $10 million as part of the U.S. Small Business Administration’s COVID-19 relief initiative, according to federal records.]

Following the merger, Porch’s existing shareholders will own 53% of the company, rolling 92% of their equity into the deal, according to the investor presentation made public as part of the announcement.

Porch publicly launched its data-driven home services marketplace in 2013 with the ambition of becoming one of the next great Seattle companies, as Ehrlichman put it in an interview with GeekWire at the time. The company appeared to be well on its way to that goal, growing to nearly 500 people by 2015. That’s when the Porch reached the limits of its initial business model, laying off 90 people and going through a broader shakeup.

Ehrlichman said Porch had been focusing on building a “classic data driven home services marketplace” before realizing that it “was going to be very challenging to build into the type of scale and impact that we wanted to build this company into.”

After seeking to make a splash in its early phases as a company, Porch has flown largely under the radar in recent years as it rebuilt its business. As of June 30, according the investor presentation, Porch had about 370 full-time employees and 530 full-time contractors serving in support, operations and sales.