Jefferies’ Kinar: Kin pulling SPAC merger part of a “wide phenomenon”

The scrapping of Kin’s planned combination with a special purpose acquisition company (SPAC) is part of a wider phenomenon as a number of insurtechs press pause on initiatives to go public, Jefferies equity research analyst Yaron Kinar has told The Insurer TV.

Homeowners insurtech Kin last week announced that its go-public deal with Omnichannel Acquisition Corp had been pulled as a result of “current unfavourable market conditions”.

Kin CEO Sean Harper said it would look to access the public markets again “when the time is appropriate”.

Speaking to The Insurer TV, Kinar said: “This is a wide phenomenon. Kin was the one that had already started the motions of going through the de-SPAC process, but we know of others in the private realm that were looking to go public last year and early this year, and it seems like those initiatives have slowed down a bit.”

The analyst noted that HCI last month put its planned IPO of TypTap on hold “in light of current market conditions”, which the Florida carrier believes do not accurately reflect its insurtech subsidiary’s value.

“And we know of at least a couple of players that have been heavily rumoured or expected to go public in recent years or in coming months, and I don’t necessarily see them going public in the next quarter or two,” Kinar said. “Most especially, Pie Insurance and Next have been rumoured for a while as potentially going public and I don’t see that happening in coming quarters.”

As this publication has analysed, the publicly listed insurtechs have endured a torrid trading period since the turn of the year, following on from a tough 2021.

In contrast, the private funding market for start-ups and early stage insurtechs remains highly active. Gallagher Re insurtech executive Andrew Johnston recently described Q4 funding as “truly seismic”, with the quarter contributing $5.3bn to the 2021 record total insurtech funding of $15.8bn.

“I think there is a growing understanding among private players that you are getting funding and a lot of interest from the private market, so there is less of an acute need to go public,” Kinar observed.

He continued: “Secondly, the boards that probably pushed some of these private companies to go public last year on the heels of the success of the Lemonade IPO and the initial success of the Root IPO I think have now taken a step back and said there is no reason to rush this.

“They are saying, ‘Let’s go to the private market when we are ready, when we are able to show more of a path to profitability, maybe a shorter path to profitability, better unit economics and a better track record.’”

The bubble bursts

Kinar commented that the SPAC bubble has definitely burst, with valuations coming down significantly.

In addition to the Kin deal being pulled, risk analytics company Qomplx in August last year terminated its combination agreement with a SPAC after certain closing conditions could not be met due to market conditions.

In addition, insurtech Policygenius was reported by Bloomberg in July last year to be in talks to go public through a merger with a SPAC sponsored by Perella Weinberg Partners, but that deal has not materialised.

But Kinar noted there are exceptions.

“You look at a company like Hagerty, that has been a very successful SPAC,” he said. “I think it is fairly unique in how it is set up, and certainly it had better unit economics when it went to the public markets and a more loyal set of investors when it went to the public markets.

“But by and large if you look at the SPAC valuations, whether in insurtech or elsewhere, the numbers speak for themselves.”

Hagerty, an MGA that focuses on the automotive enthusiast insurance market, completed its combination with Aldel Financial in December.

Hagerty’s SPAC merger with Aldel included a $704mn fully committed private investment in public equity led by strategic investors State Farm and Markel Corporation alongside a group of institutional and private investors.

The MGA’s share price closed at $14.25 on 31 January, up 34 percent from the closing price of the SPAC the day before the merger closed.