Insurance companies go public via SPAC IPO

Several insurtech companies, including Hippo and Metromile, among others, have merged with a special purpose acquisition company (SPAC) in order to be listed on the stock exchange. This approach has become more popular over the past couple of years as the COVID-19 pandemic has led companies to seek fast and efficient paths to growth.

SPACs are companies created to acquire or merge with an existing company in order to be listed on the stock exchange. Hagerty, a classic car insurer, plans an IPO for Dec. 3. Kin, a home insurance provider, will likely go public in mid-January.

However, as the wave of SPAC mergers has peaked over the past two years, startups that have chosen this path have struggled to keep pace with more established companies and investor expectations. Companies that have gone public through a SPAC are not performing as well as when they went public. Insurtech companies that have taken this route are not exempt from experiencing this strain. Metromile, which saw its stock drop earlier this year, is now being acquired by Lemonade.

“Look at Metromile as an example, Metromile was a Wall Street darling for a while and now look at their stock price. In fact, their company was so nascent that it ended up being acquired by Lemonade, and hopefully that these two businesses combined will thrive as opposed to two independent companies,” Watson said. “Companies considering going public may think twice about whether it’s through a SPAC.”

Watson points out that before COVID, there were less than 60 SPACs traded. Compare that to more than 200 deals closed and 400 SPACs chasing targets in Q3 2021, according to CB Insights.

SPAC’s compressed schedule may be a factor in how stock prices have changed in the months since the frenzy. SPACs have a window of 18 to 24 months from launch to find a merger target, close, and go public. Thus, SPAC sponsors are under pressure to strike a deal.

“When SPACs are less than a year old, they’re much more interested in trading than when they first launched,” Watson said. “It doesn’t change what happens to a company when it goes public through a SPAC, no matter how good the deal is in a SPAC merger, it lives in a different world as a public company and this can be a very high cost depending on the business and how it was organized before the public market.

So what’s the next step?
SPACs have been around for decades, but in the last two years there has been an increase in activity. The advantages of such an IPO include a faster process and sometimes a higher price, both of great value during the pandemic.

Kristin Kraeger, AON’s chief executive and national leader for SPACs and IPOs, said the popularity of SPACs will continue, as the option has been underutilized in the past.

“There has been success in accessing the capital market through a SPAC. I think the fever we saw at the start of this year won’t exactly go back to that kind of frenzy,” Kraeger added. “But I think SPACs are here to stay as an alternative to traditional publishing. The pandemic has had an impact on his popularity. Efficiency and speed are important during a pandemic and this will persist, even outside of the pandemic.

Sean Harper, CEO of Kin, which still plans to move forward with its SPAC IPO, remains excited about the possibilities for the public company.

“It was always our intention to go public,” he says. “We’re not looking to have a small business or sell to a big insurer. We want to make Kin a part of people’s lives. We want Kin to be iconic.

Harper said the company was considering going for a traditional IPO, but felt the SPAC route offered more opportunity.

“A lot of growing companies now choose SPACs because when you negotiate the valuation, you can talk and disclose your future plans and forecasts. For us, we created a financial plan through 2024 and that’s what we were showing to SPAC and pipeline investors,” Harper said. “In a traditional IPO that doesn’t happen and because we’re a young company, it’s hard to articulate our value if we can’t talk about our future prospects and growth.”

Harper added that when done right, SPAC investors match capabilities to a company and enable greater exposure and lower cost capital.

“We saw companies that were performing worse than us going public, so that gave us a heads up. If they can go public, we can,” Harper said, adding that companies shouldn’t just go public, even through a SPAC, if they’re not ready.

Kristan F. Talley