Will SPACs Get Recharged on Polestar EV Merger?

Investment success always attracts increased interest to the investment type. It isn’t unusual for the type to then begin to attract more interest than practical given a finite world. If there is over-speculation, investors may then pull back their interest – over time the market and investors find a smart balance. At times the regulators interject their own leverage as well.

Last Year’s SPAC successes created a surge of new blank check SPAC IPOs into the first quarter of 2021. They were all seeking that “one-of-a-kind” must own target. Investors were at first caught up in the buzz, then the so-called blank check companies had digestion problems. Electric car companies may have also become bloated around that time. It seemed that every week we learned of another EV start-up somewhere in the world. These companies are all vying to be the next great car company in a greener world. It isn’t likely the world is big enough for all of them to amass that kind of success.

20 Billion Reasons to Still Pay Attention to SPACs

SPAC managers Gores Guggenheim, Inc. may have demonstrated that there are still incredible companies to be found and merge with. Yesterday, shareholders of one of their SPACs woke up to learn they will have the option of owning a pro-rata share of a 6% stake in a car company that post-merger will be worth $20 billion. The proposed business combination was unanimously approved by both the Board of Directors of Gores Guggenheim and the Board of Directors of Polestar. It’s expected to close in the first half of 2022, subject to approval by Gores Guggenheim’s stockholders and other standard closing conditions.

Summarizing the Deal

The Nasdaq listed SPAC managed by Gores will be acquiring a portion of Polestar which is owned by Volvo Car Group and the chairman of Zhejiang Geely Holding Group Co. Actor Leonardo DiCaprio will also own a stake in the final deal (Volvo is currently a subsidiary of Geely). A combination with Gores Guggenheim Inc. first attempted in July, has now been set in motion. The SPAC’s shareholders, managers, and new external investors together will own an initial 6% stake, their contribution is $1.1 billion of cash. This is how the Gores website defined the transaction.

Polestar is a global pure-play, premium electric vehicle (“EV”) company based in Sweden, with a mission to produce progressive, electric performance cars designed and engineered without compromise
The transaction implies an enterprise value of approximately USD 20 billion
Polestar currently has two award-winning cars in production and rapidly growing sales in 14 active markets across three continents
Proceeds from the business combination are expected to be used to help fund significant investment in products and the expansion of operations and markets to create a leading company in the rapidly growing global premium EV market
The transaction includes approximately USD 800 million of cash from Gores Guggenheim, Inc.’s trust account (subject to applicable stockholder redemption rights) and USD 250 million in cash from PIPE financing anchored by top-tier institutional investors
Existing Polestar investors include Volvo Car Group and affiliates of Geely Chairman Eric Li, and actor and activist Leonardo DiCaprio, amongst others
Polestar EVs are expected to be built in the Volvo South Carolina plant

Other SPAC News

SEC Chair Gensler spoke today (September 28) and worried aloud about the lack of definition, in some cases, around what SPACs can do with investors’ money. He noted how the structure incentivizes SPACs to find a merger deal “even if it’s not a particularly great merger”—potentially at the expense of the investors they are raising money from. The SEC has also recommended changes to accounting rules related to how SPAC investors are viewed relative to others involved.

Take-Away

The Polestar + Gores Guggenheim SPAC + Volvo + Leonardo DiCaprio business combination appears to have the potential to launch an EV manufacturer upward financially where they have the resources to design, build, and compete at a high level. This seems as though it meets or exceeds the objectives of all involved in this SPAC IPO through the expected merger. The car company has the resources to grow much faster, and the investors are involved in a situation they may not have been offered otherwise.

Investors have been shying away from SPACs. Perhaps this will become the success that causes those that retrenched to regain interest and the SPAC market will attain a sustainable balance.

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