Meet the SPACs Shaking up the Automotive World
Blank check companies are ramping up investment in mobility startups — even Goldman Sachs joining the fray (sort of)
If you keep up with business and technology news and you haven’t heard of SPACs, you have been probably been living under a rock.
A special purpose acquisitions company, or SPAC, is arguably the hottest financial and investment trend in North America right now. In 2020, there were nearly 250 SPACs accounting for about $84 billion in investments, compared to only $3.9 billion in 2015.
In layman’s terms, SPACs are public shell, or “blank check”, companies that do not have a product or service. They are specifically created by a group of investors with the intent of buying or pouring money into new companies within a certain time frame (e.g. two years).
If those acquisitions do not materialize, the company is dissolved and the money is returned to investors. (For a complete overview of SPACs and the reasons for their sudden rise, read this comprehensive CNBC article).
SPACs have been around for decades but they have recently become popular as a way for startups to avoid their own, direct IPOs in a turbulent, pandemic economy.
In other words, SPACs allow new companies to get a private valuation while opening up access to public capital. It’s the corporate equivalent of having a co-signer and guarantor for your company when raising money. More importantly, SPACs allow retail investors to get in on early in the game as many of these companies would not be able to go public on their own own and would most likely have to continue with venture capital or private investors.
Many analysts and investment gurus believe that SPACs are overheating the markets and that we are approaching a bubble. I am not going to weigh in on the risks of SPACs here. That is fodder for an entirely different article.
SPACs have been super active in the mobility and transportation space, particularly in early-stage companies in electrification. EV producers (Nikola Corp., Lordstown, Canoo), charging companies (EVgo Services), battery manufacturers (Microvast, Quantumscape), battery recyclers (Li-Cycle)—the list is pretty extensive. Many other EV brands such as Bollinger and Faraday Future are either in talks with SPACs or waiting for deals to close this quarter.
SPACs are investing in other areas of automotive as well. One of the most high-profile announcements this month was connected car data company Otonomo’s merger deal with Software Acquisition Group. More deals are on the way.
If you are bullish about the future of new mobility companies, below is a short list of SPACs to follow over the next few weeks:
Kensington Capital Acquisition II (NYSE: KCAC.U): You have probably heard of the first version of the KCA SPAC because of its recent merger with Quantumcsape, a battery producer most famous for being backed by the likes of Bill Gates and Volkswagen. Kensington Capital Partners, a Westbury, NY-based merchant bank, is specifically creating these investment vehicles to fund mobility startups. The first IPO closed the deal with Quantumscape, and now a second version, Kensington Capital Acquisition II, has filed for a $200 million IPO to target more companies.
Churchill Capital IV (NYSE:CCIV): Everybody is waiting with baited breath for Churchill to close its deal with Lucid Motors, an EV manufacturer. Lucid was launched in 2007 by former Tesla executive Bernard Tse. The company has spent years developing battery technology but has been focusing more on building a luxury vehicle of late. While the deal remains unconfirmed as of this entry, insiders think it’s only a matter of time and expectations are sky high. CCIV’s stock has jumped 300% since the beginning of the year. The SPAC, backed by Brazilian billionaire Michael Klein, has already raised over $2 billion, and its target, Lucid, is expected to get a $1.5 billion valuation, according to a Reuters report.
Goldman Sachs Group: OK, I am cheating a bit here. But I would be remiss not to mention that the investment bank is on the cusp of forming a joint venture of its own (not technically a SPAC) that will focus specifically on new mobility companies, according to a Bloomberg report. It is interesting that Goldman Sachs CEO David Solomon has been publicly skeptical of the SPAC boom, but it seems like the company does not want to watch on the sidelines as other financial firms plunge headlong into automotive startups and reap the benefits. The details of the JV are still unclear but when Goldman Sachs decides to target a specific domain, it is definitely worth following.
