Fintech company SoFi is to go public in a $8.7bn deal with a blank-cheque company set up by Chamath Palihapitiya, extending a frenzied run of dealmaking by the former Facebook executive.
Social Capital Hedosophia V, the fifth special purpose acquisition company (Spac) set up by Mr Palihapitiya and his partner Ian Osborne, will merge with SoFi, allowing the San Francisco-based company to list on the New York Stock Exchange.
As part of the deal, SoFi will receive $805m raised by Social Capital at its initial public offering in October, as well as $1.2bn of commitments from investors such as BlackRock, hedge fund Coatue Management, Fidelity and Mr Palihapitiya himself.
SoFi grew quickly in the aftermath of the financial crisis, tapping into a growing market of college graduates seeking to refinance their student loans before expanding into other financial products.
But the company later became a flashpoint in the #MeToo movement after former employees accused co-founder Mike Cagney of tolerating a culture of sexual harassment.
Mr Cagney resigned as chief executive in 2017 and was replaced by former Twitter chief operating officer Anthony Noto, who has moved SoFi into new lines of business, such as mortgages and exchange traded funds.
SoFi will use $150m of the proceeds on transactions that will help the company obtain a national bank charter, now a popular move among fintech groups that once set out to disrupt the traditional banking system.
SoFi said in October it had received preliminary approval from the Office of the Comptroller of the Currency for a national banking charter, which would allow it to lend and directly accept customer deposits.
Spacs have become increasingly popular among companies looking to go public, with executives touting the structure as a faster route than traditional initial public offerings.
Vehicles set up by Mr Palihapitiya and Mr Osborne, a British investor, have so far taken three companies public, including Richard Branson’s Virgin Galactic in 2019 and property group Opendoor last year.
The companies have performed well, with Virgin Galactic shares trading at almost $25 and Opendoor shares at $28, a significant premium on the $10 at which investors typically buy into a Spac. Clover Health, a medical technology company that went public via a merger with Social Capital Hedosophia III, will start trading on Friday.
But Spacs have also drawn criticism for the riches they can heap on their sponsors, who receive shares for arranging the deals. Spacs can also make financial projections that are normally off limits to companies entering the public markets.
Mr Palihapitiya has previously defended the so-called promote, a Spac feature that gives sponsors a 20 per cent stake in the company, telling the Financial Times last year: “I just don’t understand why all of a sudden it’s OK for banks to make money, but it’s not OK for other people to make money.”
Private investors led by the Qatar Investment Authority previously valued SoFi at $4.8bn in May 2019, including $500m in new capital. SoFi explored a sale in 2017, the FT reported, looking for a $8bn-$10bn valuation.
SoFi said it projected about $1bn of adjusted net revenue this year and would be profitable on an adjusted earnings basis, before interest, taxes, depreciation and amortisation.