Denver Metro Clean Cities (DMCC) recently held a “What the SPAC?” webcast conversation aimed at explaining what Special Purpose Acquisition Companies (SPACs) are and why they are popular as well as how they pertain to the electric vehicle (EV) market specifically.
They had guest speakers from Lightning eMotors, Radar Trading and Galway Sustainable Credit to discuss SPACs and answer related questions.
SPACs are companies formed strictly to raise capital and take a company public without going through the traditional Initial Public Offering (IPO) process. They are also referred to as “blank check companies” because their business plan is to raise funds for an acquisition opportunity. That opportunity is not identified before capital is raised, so investors are unaware of what company they will ultimately be investing in.
SPACs are also similar to reverse mergers, in which a private company becomes public by purchasing control of another public company. Unlike reverse mergers, SPACs come with a clean public shell company (a company that exists only on paper, but has a bank account or holds investments) rather than an existing public company.
According to Trent Yang from Galway Sustainable Credit, “[A SPAC] is a publicly-traded company with the sole purpose of going out and acquiring a private company to bring to the public market… usually formed by industry experts or financial leaders.”
SPACs generally do not have a specific target in mind for acquisition. They often have an industry or market they are interested in that gives investors an idea of what type of company they will be investing in. Once the funds are raised, SPACs have two years to complete an acquisition – purchasing most or all shares of another company – or the funds have to be returned to the investors.
Although EV SPACs are not a new concept, the recent explosion of the EV industry and the scale at which these companies are emerging is something this industry hasn’t experienced before.
Currently, there are around 15 EV-related SPAC’s in the U.S. and most of them are involved in different facets of EVs – batteries, cars, buses, trucks, vans, hydrogen and charging stations.
“We are… re-living the roaring 20’s… seeing this new explosion of the [EV SPAC] industry,” Ronnie Kohrt from Radar Trading said.
This trend is a result of the growing success in the EV industry and the fact that “[EV SPACs] validate many companies in the ecosystem… there will be a lot of winners,” Tim Reeser from Lightning eMotors said.
This speaks to the nature of EV SPACs and how co-dependent many of them is because the ecosystem of these companies is set up such that the success of one relies on the success of another (i.e. in order for electric cars to succeed, they need charging stations to succeed).
It is not all that surprising that the number of EV SPACs in Colorado is growing right now. The people who are running the SPACs are highly incentivized to find the right investment target so that when the company goes public it can be successfully traded in the market.
Electric vehicles are a trendy market right now, so SPACs are jumping on the bandwagon. The expanse that the electric vehicle market future looks like is also a huge incentive for SPACs to invest in the industry.
“[EV SPACs] are great for Colorado… more investments, more jobs, more sustainability solutions deployed,” Yang said.
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