CCIV SPAC Analysis
A brief overview of the CCIV merger with Lucid Motors
The Beginning
SPACs are a recently booming phenomenon, peaking in 2020 with over 237 blank check companies going public raising around $80 billion. One of the most prolific SPACs so far in 2021 has been the Churchill Capital IV (NYSE: CCIV) merger with Lucid Motors. With the craziness of GameStop and Redditors taking over in late January, this merger was looming in the background with a massive valuation. This SPAC was founded by Michael Klein, a former Citigroup (NYSE: C) executive. In late January, rumors started to emerge Churchill was in talks to merge with Lucid Motors, a luxury electric vehicle company founded in 2007. The company has not sold a vehicle yet, with its first car, the Lucid Air, currently in development. The company has around 2,000 employees and is based in Newark, CA.
The Reaction
The stock price of CCIV was at $20 on January 20th. After a few weeks of rumors circulating, the stock price shot up to $30 by February 4th. And $58 on February 18th, giving CCIV a market cap of around $15 billion. This was due to pure hype around the merger, partly caused by some backing of CCIV by the Saudi Arabian sovereign wealth fund. Lucid is a competitor to Tesla, trying to become the next large electric vehicle company. However, Lucid’s cars are priced in the mid-100 thousands. They sell luxury cars to a smaller demographic. A realization of this and the implied valuation as the deal was announced sent CCIV shares plunging. On news that the deal allocated CCIV shareholders with 16.1% of Lucid’s equity, the implied value of the combined company was around $57 billion at the $58 share price.
The Aftermath
For reference, Ford Motor Company (NYSE: F), a company founded in 1903, selling over 500,000 cars a year, had a lower market cap (Ford had a market cap of around $48 billion at the time) than the Lucid Motors merger, despite Lucid never selling a car. Reddit was also backing this merger, but after this realization, even they would have to take a step back and take in what the valuation was implying. After the deal was announced on February 22, the stock dropped almost 40%. And as of March 23, 2021, the stock is down 57% from its high to only $24 a share. This shows the harsh reality of the hype surrounding SPACs and how volatile they can be to invest in. SPACs used to be the last resort for a company that couldn’t find any other buyers. Now, they are a haven of capital for companies with no revenue in need of cash. CCIV is an interesting case of one of the most hyped-up SPACs that has had a massive downfall. We will see if it can have a rebound similar to GameStop which recently crashed, but GME is back to around $181 a share as of March 23, 2021, up 350% from a low of $40 in February. But it is highly unlikely in the short-term because of the almost ridiculous initial valuation.
