PIPE fitting: Additional cash raises valuations of SPAC targets

New candidate companies and willing investors prime the pump

Electric vehicle and infrastructure startups continue to attract hundreds of millions of dollars from special purpose acquisition companies (SPACs) targeting business combinations and speedy public trading debuts.

Set aside the hype around the tens of billions invested in so-called blank-check companies. It is  pocket change compared to the trillions held by investment funds, venture capital and private equity, said Mark Saraiva, Cowen Inc. managing director and head of its transportation group.

“Everyone talks about, ‘Oh my God, is this like a SPAC bubble?’ But when you really look at it, there’s so many pools of capital out there,” Saraiva told FreightWaves.

The entire private capital market globally manages about $6.5 trillion of assets, he said.

So far this year, 200 SPACs have raised $69.3 billion, more than five times the amount raised in 2019, according to SPAC Insider. About a dozen are electric vehicle, supplier or infrastructure startups.

“Even though everybody likes to make a big deal out of this huge explosion of SPACs, when you really put the numbers in context, it’s not that big,” Saraiva said.

A faster way public

The SPAC craze is like a flywheel. As young companies take the shortened route to public trading and are known by their stock tickers, more candidate companies emerge. Mutual funds like Fidelity and investment managers like Wellington and BlackRock invest in one SPAC after another.

“BlackRock alone has over $6 trillion of assets ($7.43 trillion in 2019) under management,” Saraiva said. “And that’s one firm. Only about a trillion of it is venture capital [for] early-stage financing.”

But it is more than enough for bankers seeking participants in private investment in public equity (PIPE) deals to figuratively keep them on speed dial.  

Cowen helped raise $525 million for battery and fuel cell electric truck maker Nikola Corp. (NASDAQ: NKLA); $500 million for electric SUV maker Fisker; and $400 million for U.K.-based electric van and bus startup Arrival. Of the three, only Nikola has completed its business combination.

“You have companies that want to do SPACs because it’s an attractive way for them to access large amounts of capital at attractive valuations,” Saraiva said. “Public company investors are getting access to these very attractive companies at an earlier stage than they might be able to in a traditional IPO.” 

Bypassing the traditional approach

In a traditional IPO, institutional investors lock up big stakes in high-profile private companies like Google and Facebook before funds can buy shares. Most individual investors are shut out until public trading begins.

“A lot of these public company investors would have no shot at investing in these really exciting high-growth companies that may be massive companies in a few years,” Saraiva said. “It could be the Google or the Amazon of tomorrow. Historically only private investors had access to these great companies that made all this money.”

SPACs, which began in the 1980s as lightly regarded investor pools, evolved over the years. They exploded this year as an alternative to private equity and traditional IPOs, accounting for more than 40% of all new public offerings.

U.S. Securities and Exchange Commission rules allow SPAC companies to talk about future revenue and profit projections during PIPE-raising road shows. Traditional public offerings rely only on existing information.

The flywheel effect

Several companies considering traditional IPOs or private equity are choosing the SPAC route.

“As you see successful deals, the pool of companies and targets grow,” Saraiva said. “The sponsors see this and they want to do more. It just builds on itself.”

Tortoise Acquisition Corp., which sponsored heavy truck hybrid driveline maker Hyliion Holdings Corp. (NYSE: HYLN), is raising money for a second SPAC. Gores Metropoulos is backing its  fifth SPAC — Luminar, a maker of light detection and ranging (LiDAR) sensors. LiDAR uses pulsed laser beams to measure ranges. The technology is used in autonomous vehicles.

Not all SPACs will succeed in combining the startup with its sponsor. But that depends more on the company than the SPAC process, Saraiva said. Many SPAC companies have little or no revenue. Fewer still are profitable.

“Just because a company doesn’t have large revenue today doesn’t mean it’s not going to be a very large successful company in the future,” Saraiva said. “You have these companies in very attractive high-growth industries like the EV industry that are able to talk about what their revenues and their profits are going to look like a couple of years from now.” 

Marketing off future numbers can be hype. Or the projections can pan out. Funds that typically have only days to decide whether to accept a small allocation in an investment bank-led traditional IPO get more breathing room with SPACs.

“When we do these PIPEs, oftentimes the investor will have several weeks to decide whether or not they want to participate,” Saraiva said. “It’s several weeks of doing diligence on the company. And they’re able to take larger positions.”

In for the long haul — maybe

PIPE investors purchase unregistered shares of the SPAC company. They are registered with the SEC a couple of months after the business combination closes. 

If those investors cash out, it can hammer the newly public company’s shares. For example, the registration of PIPE shares led to a 20% drop in Nikola’s share price on July 17. Volatility drove the share price up and down since trading began in June. A short seller’s fraud accusation in September tanked the stock. PIPE and early investors can sell shares Nov. 30.

“BlackRock and some of these other PIPE investors are generally long-term investors,” Saraiva said.

Hyliion registered shares from its $325 million PIPE after the market closed Monday. Its shares fell about 8% on Tuesday, a day when markets continued a bull run that took the Dow Jones Industrial Average above 30,000 for the first time.

Electric avenue

SPACs appeal to investors who want to back companies committed to carbon-neutral transportation. That includes battery-electric, fuel cell and hybrid vehicle manufacturers; electric charging and hydrogen fueling stations; and makers of components like battery packs. SPACs also tantalize traders seeking the next big thing.

“The electric vehicle market is at the very beginning of what’s going to be a long high-growth period,” Saraiva said. “Before this year, there were not many ways to play that as a public market industry. Aside from Tesla (NASDAQ: TSLA), you had a few very small publicly traded companies.”

Traders like those using the Robinhood platform spark, deflate and reenergize SPAC share prices. Day traders often don’t understand the technicalities of SPACs, said Vince Cubbage, Tortoise Acquisition chairman and CEO.

For example, few institutions invest in a SPAC between its announcement and its closing, which is uncertain. PIPE investors cannot sell their unregistered shares. A limited amount of stock in the sponsor company that will become the merged company is available. Research is nonexistent because analysts avoid coverage until a business combination is complete.

“You’ve seen a fair amount of [share price] volatility,” Saraiva said. “A lot of it is driven by retail investors.”

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Click for more FreightWaves articles by Alan Adler.

Alan Adler

Alan Adler is a Detroit-based award-winning journalist who worked for The Associated Press, the Detroit Free Press and most recently as Detroit Bureau Chief for He also spent two decades in domestic and international media relations and executive communications with General Motors.