Why Airbnb Is Saying ‘Thanks, But No Thanks’ To Bill Ackman’s SPAC

Short-term rental giant Airbnb has said “thanks, but no thanks” — at least for now — to a proposal to go public by merging with billionaire Bill Ackman’s special purpose acquisition company (SPAC).

Bloomberg reported Wednesday (Sept. 2) that Ackman approached Airbnb about merging with his recently formed SPAC, known as Pershing Square Tontine Holdings Ltd. But the news outlet quoted unnamed sources as saying that while Airbnb hasn’t completely ruled out such a deal, no discussions are currently underway.

Airbnb recently filed paperwork for an initial public offering (IPO) with the U.S. Securities and Exchange Commission. There are no details yet on the offering size, but an IPO would presumably raise billions of dollars and reportedly take place before year’s end.

Choosing to go public through traditional IPO channels would seem to indicate that Airbnb feels comfortable going it alone, so to speak. Previous funding rounds had pegged Airbnb’s valuation as high as $31 billion, but the latest $2 billion in fundraising put the company’s value at $18 billion.

Part of that reduced value is tied to the COVID-related economic headwinds that have hit many firms and the fact that Airbnb recently laid off 25 percent of its 7,500-member staff. But Airbnb has seen at least some rebound during the summer vacation season, especially given that rural homes have seen a boost in demand. (Such bookings were up 25 percent in June, for example.)

To get a sense of why Airbnb rebuffed Ackman’s overtures, consider the structure of SPACs, also known as “blank-check” companies.

These shell firms raise money through IPOs despite having no assets of their own. Instead, SPACs raise cash first and then buy promising private companies, typically within two years. A SPAC generally doesn’t identify prior to the IPO what firms it plans to buy, and investors who buy the SPAC’s shares usually don’t get much say in which businesses are targeted, either.

Nonetheless, Pershing Square Tontine managed to raise $4 billion through an IPO last month, with another $1 billion available from Ackman’s hedge fund. But if Airbnb merged with it, the vacation rental platform would give up at least some control of its operations and thus the ability to move toward its strategic goals. That’s a big potential negative.

Then there’s the valuation aspect.  Ackman’s SPAC isn’t exactly small, with as much as $5 billion in “dry powder.” But we wonder if even that’s enough dry powder to claim much of a firm with a valuation as big as Airbnb’s $18 billion value as of its last fundraising.

And the fact that Airbnb is sticking to its IPO guns means that management thinks the company’s valuation could be even higher if the firm comes to market sooner rather than later. There’s also the desire for some early Airbnb employees — some of whom have been around for years — to cash out restricted stock options that Bloomberg has reported will expire in 2021.

But if the IPO remains under wraps, then Airbnb’s valuation might be pushed down and the company could be willing to cede some control later for cash today by merging with a SPAC.

But given its recent boost in rental demand, Airbnb could argue that its valuation could go higher because the company survived the pandemic thanks to its attractive exposure to rural properties and the lure of its platform model. It looks like SPACs, then, are on the back burner — at least for Airbnb.