Special Purpose Acquisition Companies (SPACs), which we recently discussed}}, are currently among the most popular ways for companies to go public in the stock markets. Basically, a SPAC is a blank check company that is already publicly traded. It uses funds to acquire a private company and make it public without going the traditional (IPO) route.
In recent months, Palantir Technologies (NYSE :), Asana (NYSE :), Jfrog (NASDAQ :), Airbnb (NASDAQ :), and DoorDash (NYSE 🙂 all took the more traditional IPO route by selling new shares. in a public offering, rather than merging with an existing SPAC.
However, according to SPAC Research, there have been 234 SPAC IPOs so far in 2020. Prominent SPACs lately include Adapthealth (NASDAQ :), DraftKings (NASDAQ :), Immunovant (NASDAQ :), Repay Holdings (NASDAQ :), and Virgin Galactic (NYSE :).
A UK-based private company, Arrival manufacturing commercial electric vehicles (EVs) will be made public through an SPAC list.
Arrival wants to grow in commercial EV space
On November 18, Arrival announced its intention to go public in the US by merging with Ciig Merger (NASDAQ :), an SPAC. According to CNBC, "the deal gives Arrival an enterprise value of $ 5.4 billion … and the combined company is expected to collect a total of $ 660 million in gross cash proceeds."
Ciig Merger was founded in 2015 and currently focuses on commercial EVs, i.e. van and bus models. It plans to have four products in the coming years.
It is already partnering with Hyundai Motor (OTC 🙂 and United Parcel Service (NYSE 🙂 for the acceptance of its electric vehicles. BlackRock (NYSE 🙂 is also a financier.
When the merger is complete, the new combined company will be listed on the NASDAQ and will trade under the ticker "ARVL". This is expected to happen in early 2021.
Most SPACs like CIIC start trading around $ 10. When a deal is announced, the stock price usually jumps up. In the case of Arrival-CIIC's announcement, investors were satisfied. On December 7, shares hit a record high of $ 37.18. Now they hover around $ 28.
EV SPACs are sizzling
A new exchange-traded fund (ETF) was launched in early October, the Defiance Next Gen SPAC Derived ETF ( NYSE :), which provides exposure to companies that went public through a reverse merger with a SPAC, started trading. In less than three months, the fund returned about 10%.
Defiance SPAK Next Generation Derivative ETF Chart.
2020 has also witnessed significant increases in the share prices of electric vehicle (EV) companies. For example, Tesla (NASDAQ 🙂 stock, which will join on Dec. 21, is a dazzling 650% year-to-date (YTD).
In previous weeks, we also looked at several other ETFs in this space, such as the (NASDAQ 🙂 or the (NYSE :), which allowed long-term investors to participate in the growth of alternative energy vehicles.
While market participants are looking for the next Tesla, a number of private EV companies are making headlines while also going public through the SPAC route. Some of these mergers include: Fisker (NYSE :), Lordstown Motors (NASDAQ :), Luminar Technologies (NASDAQ 🙂 and (NASDAQ: LAZRW) and Nikola (NASDAQ: {{1162166 | NKLA).
In other words, the reverse merger between Arrival and CIIC is already joining a busy EV SPAC space.
On November 9, Arrival said it would set up its North American headquarters in Charlotte, North Carolina, where it would employ approximately 150 employees. While it is too early to know whether the new company will create significant shareholder value, the stock price will likely be volatile in the near term.
Bottom Line
Investing in SPACs can be volatile yet profitable, as recent SPAC mergers have shown. However, such returns generally mean a higher exposure to risk.
In a recent article, Mate Rimac, founder of EV company Rimac, which focuses on the electric hyper-car space, expressed concern about the number of EV companies using the SPAC route to become public entities. He said:
“I hope these SPACs will be successful. Many of them will not. I hope it won't hurt the industry too much. "
We are increasingly seeing analysts and industry experts highlighting the downsides of SPAC investment.
Meanwhile, the US Securities and Exchange Commission (SEC) has also sharpened its focus on this hot asset class. On December 10, it issued an investor warning and bulletin:
"It is important to understand how an investment in a SPAC should be assessed as it goes through these stages, including the financial interests and motivations of the SPAC sponsors and related individuals."
Before investing in a SPAC, we encourage investors to do due diligence first. Analyzing financial statements, getting to know the management behind the company, and learning about the points recently highlighted by the SEC can be important starting points. Investing in an ETF rather than a single company could offset some risk and also help retail investors diversify their long-term portfolios.
