Recently, IPOE announced its merger vote date for completing the business combination with SoFi. The Chamath Palihapitiya-backed SPAC IPOE (Social Capital Hedosophia Holdings V) announced its merger target as the fintech company SoFi (Social Finance) in January. The merger values SoFi at an equity value of $8.65 billion post-money. SoFi will receive $2.4 billion in cash proceeds, including a $1.2 billion PIPE led by Palihapitiya. What happens to IPOE after the SoFi merger?
The merger was expected to close in the first quarter of 2021 but it got delayed when the SEC updated its guidance about the accounting treatment of SPAC warrants.
When SoFi will start trading
IPOE shareholders are expected to vote on May 27 on the merger with SoFi. If the merger is approved (and there are high chances that it will), the stock will stop trading as IPOE on May 28. SoFi will start trading on Nasdaq under the ticker symbol "SOFI" on June 1.
IPOE after the SoFi merger
After a SPAC successfully merges with its target, its stock weaves into the new company. The SPAC or a shell company forms to find a target and merge with it. So, IPOE will cease to exist in its SPAC-avatar post-merger. Similarly, the combined stock will start trading on Nasdaq under the ticker “SOFI.”
IPOE warrants after the merger
A SPAC warrant gives common stockholders the right to purchase stock at a certain share price. If an investor wants to purchase more stock, they can usually do so below market value. The exercise price of the IPOE warrant, like other SPAC warrants, is $11.5. The IPOE warrant holders can exercise their warrants either 12 months from when the initial offering closes or 30 days after the business combination (whichever is later).
Similar to other SPACs, IPOE has a clause regarding forced redemption. The clause will get triggered if the stock goes above $18 for 20 out of 30 trading days. The conversion cap on IPOE is 0.361 common shares per warrant.
Should I buy IPOE before or after the merger?
Lately, most of the SPACs have fallen after merger dates. One of the reasons for this is the sell-off in growth names and most of the SPAC targets have been growth companies. Investors are getting wary of companies with most of the earnings skewed towards the future as interest rate expectations rise. This phenomenon of SPACs falling after mergers has left investors wondering if they should buy IPOE before or after the merger.
Looking at IPOE stock’s performance, it has fallen by 23 percent from its 52-week high. However, the stock has bounced back and is currently trading with 20 percent gains in the last month. This was mostly a relief rally as the merger date was finalized after a long delay.
The stock should go up after the merger given SoFi's fundamentals, even if it falls down for a few days. But you can’t exactly time the market. If you want to get into SoFi for the long haul, it doesn’t matter much if you buy now or later. The long-term price momentum for the stock is up.
Will SoFi stock fall after the merger?
Investors have been slowly returning back to growth stocks to pick up quality names at reasonable prices. SoFi remains one of the best fintech start-ups with solid fundamentals and a robust outlook. The stock has already factored in the growth to value shift with the recent fall. Therefore, there shouldn't be a major sell-off in SoFi stock after the merger.
SoFi stock prediction
None of the Wall Street analysts cover the stock yet. Therefore, we can gauge the stock’s outlook by looking at its own forecasts and the outlook for the industry and its peers. SoFi’s revenues are expected to grow by 58 percent and 53 percent in 2021 and 2022, respectively.
SoFi's first-quarter results were above the expectations too. The company reported an increase of 110 percent in memberships to about 2.3 million. The adjusted net revenue of $216 million increased 151 percent. The blowout results increase the conviction in the company’s long-term projections. SoFi's EBITDA margins are estimated to expand to 32 percent by 2025 from 16.9 percent in 2022. If the company achieves even 80–85 percent of its long-term projections, the stock could be worth three or four times five years from now.