Money-losing operations, a business plagued with delays and a choppy economic environment forced Arrival SA to strike a second blank-check merger after roughly two years as a public company.
(Bloomberg) — Money-losing operations, a business plagued with delays and a choppy economic environment forced Arrival SA to strike a second blank-check merger after roughly two years as a public company.
The Luxembourg-based producer of commercial electric vehicles went public in March 2021 after combining with CIIG Merger Corp., and now is this year’s second de-SPAC to make a deal with another blank-check firm to raise additional cash. On Thursday, Arrival said it plans to merge with Kensington Capital Acquisition Corp. V to secure up to $283 million in cash if it can convince investors to not redeem.
In January, British-connected vehicle-data company Wejo made a similar arrangement.
The need for a second SPAC deal amid a spiraling stock price — which Arrival said in November made it impossible to tap an at-the-market platform as it warned it could go bust — is a jarring switch from the go-go days when the firm went public.
Arrival nabbed a $5.4 billion valuation in its CIIG deal and boasted of expectations for $14 billion in revenue in 2024. Now, its Kensington deal implies a pro-forma enterprise value of $524 million, and analysts see a measly $1.5 million in revenue next year after about $1 billion in losses in 2022, data compiled by Bloomberg show.
“Raising capital in the current environment is effectively impossible for most companies, so this is a novel structure to see if they can get some cash in the door,” says Julian Klymochko, the chief executive of Accelerate Financial Technologies, which invests in the SPAC market. “Whether or not this is successful remains to be seen.”
Shares of the EV producer soared as much as 55% to 19 cents Monday in New York. The stock has spiraled from its $10 IPO price, erasing more than $13 billion in market value from its peak.
The Arrival-Kensington deal is quite complex and offers an arbitrage opportunity for traders willing to tolerate the risk.
Kensington holders will get an amount of newly issued stock equal to $17 divided by the 10-day volume-weighted average price of Arrival shares for the time preceding the fourth day prior to Kensington’s shareholder meeting.
So an investor who can short enough Arrival stock, would lock in the value and earn a spread on Kensington shares. But the bet is rife with risk, and history is not on the side of investors, according to Klymochko. Similar situations typically burn arbitrage traders because when “the 10-day VWAP period shows up, there’s no borrow, and arbs get loaded with stock and pile out at the same time,” he said. “Arrival shares trade below $1, and stocks trading that low are typically very difficult to short.”
Timing pressures and an uncertain investing environment could drive SPACs to revisit cash-needy firms that went public via blank checks. Nearly 300 SPACs face deadlines in the coming six months as dozens of sponsors opt to throw in the towel and return cash to investors.
“I expect to see more of these transactions,” Klymochko said. “There have been quite a few de-SPACs that have failed recently so there will be more seeking a sort of last opportunity.”
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