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Special goal acquisition companies, or SPACs, they, as well as other start-ups, increase budgeting and download coveted inventory lists.
By Neal E. Boudette and Kate Kelly
Steve Burns has assembled several elements of an ad during the following year: his company, Lordstown Motors, has designed an electric van, acquired a Factory and machinery from General Motors, and amassed thousands of orders.
However, Burns continues to suffer to raise enough capital. This month, he nailed that critical detail by agreeing to merge Lordstown Motors with a special target acquisition company, or SPAC, into a deal that will generate $675 million for the truck manufacturer and a directory on the Nasdaq.
Another advantage: Unlike a classic initial public offering, a SPAC merger will only take a few months, Burns said. “The classic I.P.O. time is a year and a half,” he says. “We’re in a race to be the first with electric trucks. We’re trying to do it and start building the vehicle.”
SPAC is in the spotlight.
These corporations have long existed on the margins, offering small or troubled corporations with capital and the ability to list their inventories in inventory sharing, things they might not otherwise have access to. Sometimes called blank check corporations, SPAC compiles investor budgets without a detailed business plan. Its sole purpose is to locate another company to buy in two years. If that doesn’t happen, the company withdraws and investors get their cash back.
Although industry observers say SPAC frauds are rare, a acquisition through SPAC last year of Modern Media Acquisition, a music distribution company whose books were later suspected to be fraudulent, has made some investors think. And some facets of SPAC’s business style, namely the fact that the sponsors of those acquisition corporations can buy really important stakes in the company with which they merge with minimal charge, have raised questions about the advantages of obtaining for typical shareholders.
In recent months, SPAC investors have fallen in love with electric vehicle corporations, as electric cars are increasingly expected to soon begin replacing fossil fuel-powered ones. The shares of Tesla, the world’s largest electric car manufacturer, have grown so much that its market capitalization is almost twice that of Toyota Motor.
So far, SPAC’s transactions with automotive corporations have totaled around $10 billion, a trend that Kristi Marvin, a former investment banker who now runs SPACInsider, has called the summer “wheeled deals.”
In June, Nikola, who intends to manufacture heavy trucks powered by electric power and hydrogen fuel cells, merged with a SPAC. Investors have set their valuation at about $15 billion, more than part of what the market believes is Ford Motor’s value, even though Nikola has no advertising output.
Another electric aspirant, Fisker, agreed to merge with a subsidized corporate acquisition through Apollo Global Management, the personal equity firm.
Apollo is just one of many prominent investors who have adopted CAPS. In July, Pershing Square Tontine Holdings, which is controlled through hedge fund manager Bill Ackman, raised $4 billion in an offer on the New York Stock Exchange. Social Capital, which is run through a former Facebook executive, Chamath Palihapitiya, has subsidized a handful, adding one that merged with Virgin Galactic last year.
Michael Klein, a former Citigroup executive, has built a handful of acquisition corporations called Churchill Capital. Last month, one of his companies announced an $11 billion deal with health care provider MultiPlan.
So far this year, SPAC’s dollar turnover has doubled at most from last year, setting a record $31.3 billion, according to SPACInsider. Credit Suisse, the most active bank in subscription transactions, reports SPACInsider, followed by Goldman Sachs and Citigroup.
“It’s hard to make a large initial public offering of over $1 billion, especially in today’s volatile environment and the time it takes to deposit and tell investors its story,” said Boon Sim, founder and managing spouse of Artius Capital Partners, a personal equity firm. . Last year, for example, WeWork put up its I.P.O. after investors have become wary of the control and monetary prospects of the work area company.
In June, Mr. Sim partnered with Charles Drucker, former ceo of the payment company Worldpay, to start a $525 million SPAC to buy a generation or fintech company.
The pension budget, the mutual budget and other investors have turned to the CAPS component because low interest rates have forced them to look for higher returns.
Since 2018, SPAC has basically acquired generation and commercial companies, followed by energy and monetary companies, with a typical transaction price of approximately $1 billion, according to recent research through Goldman Sachs. Shortly after the announcement of the offers, the average CAPS surpassed the inventory market, goldman discovered, but fell into the general market after making an acquisition.
Mr. Ackman’s SPAC is the largest ever created. His company says that because it is entitled to buy more shares of the target company, pershing Square Tontine’s purchasing force can succeed at $7 billion. To make the deal more exciting for long-term investors, Pershing plans a typical corporate acquisition feature that allows the sponsor, in this case Pershing, to buy 20% of the company with which it merged virtually free of charge.
Mr. Ackman’s seven-person investment team is a broad-focused acquisition goal. She is looking for what she calls a “mature unicorn”: a high-quality company backed by companies that contemplates an IPO; a business in trouble owned by personal donors; or maybe a circle of family businesses. Pershing hopes to signal an agreement until next summer.
“There are more large-cap personal corporations than ever before,” Ackman said. Unlike some of the top speculative transactions he’s seen, he said, “we’re looking to merge with a company we can own for a decade.”
Mr. Burns of Lordstown Motors said his agreement was reached after making little progress in raising investors’ budget by traditional means. Many other people he spoke to were reluctant to check a possibility in an unproven company, especially once the coronavirus pandemic began this spring.
Goldman Sachs executives put him in touch with David Hamamoto, a Goldman alumnus who controlled investing in real estate. Mr. Hamamoto’s SPAC, DiamondPeak Holdings, had more than 150 corporations for a possible settlement.
Meeting in early June, the two men traveled to Los Angeles to see a prototype of Lordstown Motors’ truck, the Endurance, and visited the company’s factory, a former G.M. factory in Lordstown, Ohio. In July, they began organizing six to eight Zoom calls a day with institutional investors. Within three weeks, they had raised about $500 million in what is known as a personal investment in a public entity of corporations such as G.M., Fidelity, BlackRock and Wellington Management.
The deal provides Lordstown Motors with an estimated price of $1.6 billion, and Burns said the company now plans to start launching pickup trucks next year.
Hamamoto said he was looking to invest in electric vehicles. He said electric cars accounted for only about 2% of the U.S. market, however, adding that this number can reach more than 50% within 20 years, according to some analysts.
“You see what Tesla has done over the next year, and now it’s taking note of this old switch to electricity,” he said.
Other start-ups seek to compete with Tesla, which also plans to make an electric van, but Lordstown Motors is focusing on what is lately a small-armed area: paint trucks purchased through utility, structure corporations and other businesses.
“The fact that we’re attacking the advertising fleet market is a differentiated proposition,” Hamamoto said.
Lordstown Motors had ordered 15,000 trucks before the SPAC deal was announced this month, a figure that temporarily rose to 27,000, or about $1.4 billion in prospective sales, Burns said.
Of course, the company still faces challenges. Each permanent power wheel is operated and controlled through its own electric motor. This eliminates many moving parts, such as drive shafts and shafts, but the design has not been tested. Mr. Burns will also have to hire engineers, line up suppliers and establish a meeting line.
Few start-ups have been successful in the automotive industry. Tesla, for example, struggled for years before recently releasing 4 consecutive successful quarters. In 2019, its inventory fell as sales were contesting.
Lordstown Motors’ diamond-like transaction with DiamondPeak is expected to close in October. Burns said he hoped the capital injection would be enough to get the trucks off the meeting line.
“We went far enough to take us to the promised land,” he said.
Anupreeta Das contributed to the report.
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