Matt’s Top 3 SPAC Targets – AutoTech

Matt’s Top 3 SPAC Targets – AutoTech

SPAC Insider contributor Matt Cianci this week compiled his three favorite potential SPAC targets in the automotive technology space. We look at why they are compelling and why each could be a fit for a blank-check merger.


Arrival

Arrival ticks many of the boxes that we have seen in electric vehicle (EV) companies that have been targeted in SPAC combinations and adds in one new one. It makes zero-emission buses and vans designed for public transit and commercial fleets.

While several SPAC EV deals we’ve seen this year have featured commercial fleets – including the just-closed Hyliion combination – a public transit target would be relatively novel.

Hyundai and Kia invested about $111 million in the five-year-old company in January and UPS announced it had invested an undisclosed sum in Arrival the same month. Hyundai is also a backer for recent SPAC target Canoo, which uses similar “skateboard” technology for personal vehicles.

For Canoo, this partnership and potential for large vehicle orders from the Korean automotive giant formed an important part of its investment thesis. Hennessy Capital Acquisition Corp. IV (NASDAQ:HCAC) announced it had agreed to combine with Canoo in a $1.84 billion deal August 18.

The UPS connection brings this value to Arrival, as it came with a commitment to order 10,000 delivery vans and in turn received priority access to be first in line for more. The first of these vehicles are set to be delivered this year, which makes Arrival an almost mature player by EV standards.

Courtesy of Arrival

Arrival’s bus models also make the company an early bet on urban life eventually getting back to normal after the pandemic.

Public transit has been seen as a less sexy market for EV makers because it comprises a much smaller total number of vehicles, but it comes with advantages as well. Purchase orders are typically large and come with recurring revenue from regular maintenance and further replacements.

The global electric bus market is predicted to grow at a CAGR of 26.1% from 2019 to 2026 and several municipalities like New York City and Los Angeles have pledged to transition to 100% electric fleets in the next two decades.

With budgets strained by the pandemic, it’s unlikely there will be many governments rushing to upgrade their buses in the next fiscal cycle, but that could be why now is the perfect time for SPAC wedding. A combination that would lock in Arrival’s valuation in the public markets now could be very fruitful ahead of its first big bus orders 12 to 24 months down the road.

Even now, Arrival will not come cheap as it achieved a valuation of $3.3 billion in its January capital raise according to Pitchbook.


Courtesy of Aurora Innovation

Aurora Innovation

In the land of Ted Talks and product reveals, Aurora Innovation is the somewhat rare Bay Area player that has remained in submarine mode deep into its development. The autonomous car technology developer has raised more than $700 million in outside funding since its 2017 founding but just began public demos on what it has been cooking up earlier this year.

Its fundraising last year saw it bring in an impressive array of strategic investors including Amazon, Hyundai, Kia, and Shell, in addition to institutionals such as Sequoia Capital and T. Rowe Price.

Aurora’s bulkier funding round in February 2019 brought in $530 million and was sandwiched by a pair of acquisitions – adding lidar company Blackmore and street-simulation company 7D Labs to its tech stack.

It will likely need more access to capital to continue developing at this pace, and its founders are used to having deep pockets at their disposal. CEO and co-founder Chris Urmson served as the CTO of Google’s self-driving car project from 2009 to 2016, while co-founder and Chief Product Officer Sterling Anderson previously led the team that developed Tesla’s autopilot mode from 2015 to 2016.

Aurora plans to first attack the heavy trucking market, which it considers has the best unit economics and level of service requirements, but the company will ultimately seek to utilize its automation technology for all vehicles.

Fourteen SPACs that are currently searching for a combination target have specified technology or software as their area of focus although many would likely need some help from PIPE investors to take a deal home. These SPACs have trusts ranging in size from $150 million to $720 million while Aurora achieved a valuation of over $3 billion last year, according to Pitchbook.

However, this year has shown that SPAC teams are plenty capable of overcoming large trust to enterprise value ratios to get deals done. Many deals have featured PIPEs that dwarf the SPACs’ trust in total value. And, teams can also opt to simply take smaller stakes in large targets as we saw when Gores Holdings IV (NASDAQ:GHIV) inked the largest ever SPAC deal last week, which valued UWM at $16.1 billion – a 37.8x multiple of its cash in trust.


Courtesy of KeepTruckin

KeepTruckin

Another potential entry into the “deals with wheels” from this space is KeepTruckin.

It provides real-time GPS tracking for commercial truck fleets as well as machine-learning tools to optimize maintenance and reduce accident liabilities. The company was an early-mover in digitizing regulatory compliance as it provided hardware for monitoring truck driving hours, which drivers were required by federal law to log beginning in 2017.

The San Francisco-based company cruised that initial market to $60 million in revenue in 2018 and KeepTruckin gained unicorn status by locking in a valuation of $1.4 billion when it raised $149 million in its April 2019 Series D.

The pandemic has not been kind to the company, however, and overall vehicle activity across the company’s 65,000 customers dropped 12% as the lockdowns started to hit. This led the company to lay off 18% of staff and cut salaries across the board.

The company’s current money crunch could provide an opening for a bargain-hunting SPAC team. Freight flows and commercial trucking tend to correlate strongly with overall economic growth as well, so KeepTruckin could be a smart bet as a target expected to rise with the recovery.

 

 

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