The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates.
The world of investing has heard a lot about SPACs in just the past year. What used to be an avoided alternative to IPOs is now getting a spotlight for the advantages it brings in the current market conditions. As SPACs take off, particularly within the technology sector, it signals a good outlook for FreightTech founders and their startup companies. SPACs are a trend to watch and one likely to stick around in the coming years.
The role of SPACs
A SPAC — a special-purpose acquisition company or blank-check company — is a “shell” of a firm that exists solely to acquire a private company to effectively bring it to the public market. The process allows the acquired company to assume the SPAC’s position in the stock market, bypassing the tedious process of the private company launching on the stock market with an initial public offering (IPO). Executives of the SPAC may have a target industry in mind when searching for a private company to acquire, such as an electric vehicle manufacturer or a logistics company, but the public investors are essentially writing a blank check before any deal exists.
Private companies today are considering going public with the help of SPACs for several potential advantages. Compared to the traditional IPO — a monthslong process associated with high underwriting fees that often results in the stock prices jumping considerably after the company goes public — the private company benefits from a faster timeline, savings related to fees and overall a more reliable valuation of the company.
2020 was the year SPACs reached previously unseen levels of popularity. In total for 2020, over $80 billion in gross proceeds was raised, more than the amount from the previous 10 years combined, and 2021 is set to easily outpace last year, at over $50 billion already.
The SPAC boom in FreightTech
While in years past, private companies have had reason to remain private with higher valuations compared to what they could expect on the public market, this is now turning around, particularly for technology companies. Those with name recognition or a strong marketing potential do well going the route of a SPAC. These companies may be profitable or have a favorable projection for long-term growth. The FreightTech space has more than a few companies ready to go public via SPACs, companies that have found traction at their current level and have gained recognition in the industry.
Electric vehicle (EV) manufacturers have had perhaps the biggest wave of attention surrounding SPACs. Four EV companies — Nikola, Fisker, Lordstown Motors, and QuantumScape — became publicly traded via SPACs in 2020. Recently Xos Trucks, maker of electric truck chassis, reached an agreement to soon go public. These SPAC acquisitions — and talks of acquisitions — are cropping up with more frequency, and we can only expect more deals to go through in 2021.
Interest in the EV space continues but has begun to let up. Next, it seems, is a focus on autonomous vehicle and alternative-fuel truck companies, and we’ll likely see more big-name companies taking advantage of the SPAC opportunity in these and other areas of freight. Many people are saying the good times are behind us and SPACs are on their way out. With record-breaking M&A deals happening almost weekly right now, though, I won’t be surprised at all to see our first true FreighTech SPAC coming soon.