Once a sniffed-at alternative to the traditional initial public offering, the special purpose acquisition company (SPAC) is all the rage on Wall Street. Blank check companies wielding $56 billion in cash chase startup candidates that can handle the rigor of public trading.
Vince Cubbage, CEO of Tortoise Acquisition Corp., believes SPACs are here to stay. He led heavy-duty truck natural gas-electric hybrid driveline maker Hyliion Holdings Corp. (NYSE: HYLN) from private startup to public trading in 206 days earlier this year.
Now his firm is pursuing another candidate to take public without stolid investment bankers calling the shots in an IPO.
“I think our timing is very good. I think the competition will continue to realize that and we will see more SPACs enter into this sector,” Cubbage told FreightWaves Detroit Bureau Chief Alan Adler during a fireside chat during FreightWaves Live @HOME.
“We are experts in transactional execution,” he said. “You can’t be a celebrity CEO and come in and pretend you know how to execute M&A and access to capital markets and access the IPO process, which are really the three parts of a successful SPAC.”
Decades of focus on clean tech
Cubbage’s resume includes decades of experience in private equity and investment banking. He is also an expert in decarbonization — the reduction of planet-warming greenhouse gases.
Regulations like the Advanced Clean Truck rule in California seek to clean the air of carbon dioxide, nitrogen oxides and particulate pollution. Fifteen states are collaborating to limit such pollution with the backing of 37 major companies and investors.
Cubbage wasn’t looking for a transportation startup when Tortoise found Hyliion, led by 28-year-old serial entrepreneur Thomas Healy. “We found them as a tangential company that was focused on using renewable natural gas to decarbonize supply chain transportation.”
For its second SPAC, Tortoise is “staying consistent with our prior focus. We’re looking for decarbonization, energy transition sustainability companies. That’s really the roots of our firm. TortoiseEcofin has both a traditional expertise as well as a clean energy tech focus.”
Retail trader magnets
More than a dozen of the 223 SPACs in play focus on electric vehicles and their enabling technologies. The would-be public companies are magnets for day traders using the Robinhood investment app to chase quick returns on share price volatility.
The dizzying rides occur in SPAC sponsors like Tortoise and the companies whose stock ticker symbols eventually succeed their sponsors.
“In terms of the Robinhood effect, all of these companies want broad-based support. They want enthusiastic investors,” Cubbage said.
But a SPAC is an investment structure, not an investment itself. It starts with a traditional IPO to raise money. Then a deal closes with a merger target. Discounted shares in the sponsor company may be sold after the IPO. Those shares are later registered with a specific lockup date when certain classes of investors can sell their shares.
“My advice is to make sure you know what you’re investing in,” Cubbage said. “You need to understand the business. But you also need to understand the technicals around the security that you own. Some of the places where people get surprised on volatility is when the technicals come into play on top of the fundamentals.”
For example, the date when a lockup expires is spelled out in the merger agreement and the proxy statement.
“Somehow some of these investors don’t know that’s going to happen,” Cubbage said. “When it does happen, they misinterpret what that document is actually disclosing.”