SPACs: auto traders
Luminar is the latest company to announce a reverse merger listing but the risks are substantial
Who needs credentials when you’ve got potential? Austin Russell, founder of autonomous vehicle start-up Luminar, dropped out of Stanford in 2013 with support from entrepreneur Peter Thiel. On Monday, the bet paid off. Luminar announced plans to list shares at an equity value just above $3bn via a reverse merger with special purpose acquisition company (Spac) Gores Metropoulos.
Spacs are the hottest fad on Wall Street and futuristic vehicles are their favourite target. Luminar is at least the sixth such company to have announced a reverse merger listing this year.
Yet Spacs are already known to be risky. The pitfalls are heightened when investors in blank-check vehicles are asked to make a bet on revenue and profits from an emerging technology.
Luminar specialises in “lidar” — light detection and ranging — designed to make self-driving vehicles possible. It is a promising idea. The likes of Thiel and Volvo Cars Tech Fund say they want to be part of a group putting another $170m into the company. Luminar claims that by 2030, its revenue could reach $5bn and its operating profits could be about half that. Yet it does not anticipate selling more than 1,000 sensors until 2023. Growth depends on rapid adoption of autonomous vehicles — something that seems uncertain at best.
Still, shares in Gores Metropoulos rose to $11 on Monday, above the standard $10 price at which Spacs raise cash. Electric and autonomous vehicle start-ups that are waiting for Spac mergers to close include Hyliion, Lordstown Motors, Fisker, and Velydyne Lider. All of these companies admit that broad commercialisation is years away. All four deals trade between $12 and $30.
Nikola, the electric truck manufacturer whose Spac deal closed in June, is the gold standard. It trades at nearly $40, implying a $15bn market cap. Nikola justified its valuation at the time that its Spac merger was announced by using predicted 2027 revenue of $10.6bn, discounted back seven years. That is about the same time it would take to acquire two college degrees.