SmartRent To Go Public Through $2.2B SPAC Deal

Smart-home operating system SmartRent announced Thursday that it will go public through a SPAC in a $2.2 billion deal.

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The Scottsdale, Arizona-based company is merging with Fifth Wall Acquisition Corp. I, the special purpose acquisition company created by prominent proptech venture capital firm Fifth Wall.

“It was abundantly clear to us that SmartRent has emerged as the clear category winner,” Brendan Wallace of Fifth Wall said in an interview.

SmartRent makes both software and hardware to manage smart devices in multifamily communities. Property owners use SmartRent’s technology to remotely control things like thermostats and  lights. 

Fifth Wall invested in SmartRent’s $60 million Series C just about a year ago. After Fifth Wall’s first SPAC went through an initial public offering in February, the company began talking to SmartRent about merging with the blank-check company.

As for SmartRent, the company had been evaluating its options and considering a traditional IPO before it even knew Fifth Wall was forming a SPAC, CEO Lucas Haldeman said in an interview. After seeing explosive growth, especially in the past year, the company considered tapping into the public markets for capital to fuel its growth.

Many SPAC sponsors out there are well-respected, some considered Wall Street legends, Haldeman said. But he didn’t necessarily see how they could strategically help the company.

But after hearing that Fifth Wall was doing a SPAC, “It was just sort of this lightbulb moment that this is the perfect opportunity for us,” Haldeman said.

Fifth Wall’s SPAC in particular stood out because it doesn’t use a warrant system. Warrants attached to most SPACs are dilutive toward shareholders, Haldeman said. The Securities and Exchange Commission recently issued guidance that would categorize warrants as liabilities, and if it becomes law, both existing SPACs and deals in the works would have to recalculate their financials in regulatory filings for the value of warrants, according to CNBC.

SmartRent, which was founded in 2017, generated $53 million in revenue in 2020, and is estimated to finish 2021 with $119 million in revenue, according to an investor presentation. It’s also experienced zero percent churn with its customers — no small feat, but makes sense given that the company’s products are hardware-software hybrids. The company is expected to reach positive EBITDA by 2022, according to a statement from SmartRent. 

“We’ll look back on 2020 as incredibly trying as first … we go into occupied units and install products and we couldn’t do that,” Haldeman said. “But it was also an incredible catalyst for digital change.”

Fifth Wall is among a handful of VC firms that have formed SPACs of their own, along with Khosla Ventures, Lerer Hippeau and Advancit Capital. You can read more about the VC firms joining the SPAC rush here.

Illustration: Dom Guzman