Arrival/Spacs: coming to America
Warm welcome reflects high expectations it will have to work very hard to justify
America attracts dreamers. The latest ambitious would-be immigrant is UK-based electric vehicle upstart Arrival. It is set to be welcomed into New York by none other than a “blank cheque” entity, as special purpose acquisition companies are known.
At least five American electric or autonomous vehicle companies have listed their shares through recent Spac mergers. With so much capital sloshing around, it’s only natural that Spac financiers have had to look beyond America’s shores. When demand for a stock market asset is hot, you need new propositions to keep it that way.
Arrival’s landfall is supposed to involve a listing on Nasdaq at a $5bn enterprise value. Almost $700m in cash from the likes of Fidelity would grace its balance sheet. Like American counterparts, the group is justifying its juicy present-day valuation with revenues and profits that are years away.
Arrival says it will have $14bn of revenue from selling electric buses and vans in 2024 — even though production will not begin until late next year. Relationships with the likes of UPS give it confidence. Provocatively, Arrival also believes it can generate healthy cash flow quickly, in part, because of its “microfactories” whose localised production is meant to reduce capital expenditure. The group is projecting free cash flow of $1.4bn and a gross margin of 26 per cent by 2024.
Five auto tech companies that have gone public via Spacs now trade between $16 and $25, well ahead of the $10 Spac price. Arrival’s own analysis shows that its theoretical valuation is in line with those other deals. Shares have a habit of running up afterwards — and sometimes crashing, as demonstrated by electric trucks group Nikola.
Shares in Arrival’s Spac, CIIG Merger Corporation, jumped on Wednesday to more than $13 per share, suggesting Wall Street finds Arrival’s speculative financial projections promising. New immigrants to America have not always been treated so well. But the warmth of Arrival’s welcome reflects high expectations it will have to work very hard to justify.