STOCK ALERT
Electric vehicles are on a hot streak. Stock in (TSLA) the EV behemoth, is up more than 400% year to date, and startups hoping to be the next Tesla have raised billions in capital. Now another EV company is raising money, but this one has a different approach from many of its peers.
On Friday, XL Fleet announced plans to merge with (PIC) (ticker: PIC), a special purpose acquisition company, or SPAC. The companies expect their combination to close by the end of 2020, at which point Pivotal shares will convert to shares in XL Fleet, under the ticker XL.
Pivotal stock surged over 20% from Thursday’s close through Tuesday’s close.
It’s the latest of several SPAC deals with companies focused on electric and alternative-fuel transportation this year. (NKLA) (NKLA) merged with VectoIQ in June.
Other announced deals include Hyliion merging with (SHLL) (SHLL); Fisker merging with (SPAQ) (SPAQ); Lordstown Motors with (DPHC) (DPHC); and Canoo merging (HCAC) (HCAC). That quartet is focused on vehicles. QuantumScape is merging with (KCAC) (KCAC). QuantumScape makes next-generation EV batteries.
Private players appear to prefer SPACs these days because it allows for a faster time to market—and certainty of cash proceeds.
Each of these EV companies has a slightly different approach, though with some overlap The market, however, is growing fast enough for all to benefit in the near term, says Tod Hynes, founder and chief strategy officer of XL Fleet. Hynes passed the CEO reins to Dimitri Kazarinoff, a former executive at (ETN) (ETN), in October 2019.
“The biggest competitor is the status quo,” Hynes told Barron’s. “I think we’re all competing against diesel and gasoline, and that is a massive, massive opportunity for plenty of companies to make a lot of money in this transition to electrification.”
XL Fleet, for its part, is focused on electrifying class 2 to 6 trucks. It’s a commercial vehicle strategy similar to that of (WKHS) (WKHS). Many, including Hynes, believe electric commercial vehicles make sense because they can drive all day on one battery charge and recharge in a central fleet location at night.
XL, unlike Workhorse, doesn’t manufacture full vehicles. Instead, it adapts its electric powertrain systems to existing products. That is similar to Hyliion, but Hyliion is focused on larger, class 8 trucks.
Class 8 trucks are familiar to U.S. drivers—and investors. Those are the big rigs driving down highways manufactured by companies such as (PCAR) (PCAR). Smaller classes of trucks, like the ones XL is focused on, include vehicles such as school buses and delivery vans.
XL is a little different than Hyliion, Workhorse, and even Nikola for another critical reason: sales. Those three commercial vehicle peers don’t generate substantial sales yet. But XL Fleet had revenues of $7.2 million last year, which it expects to triple to $21 million in 2020, growing to $75 million next year.
The company is targeting a 6% share of the class 2 through 8 commercial vehicle market in North America in 2024. It estimates that would translate to about $1.4 billion in sales and $308 million in Ebitda, short for earnings before interest, taxes, depreciation, and amortization.
Pivotal, the existing, publicly traded company, raised $230 million in an initial public offering in July. The SPAC’s sponsors are Jon Ledecky—chairman of Ironbound Partners and a co-owner of the NHL’s New York Islanders—and Kevin Griffin of MGG Investment Group, a lower-middle market-focused direct lender. Both have had experience with SPACs in the past—some successful in the long term, some not.
The deal with Pivotal values XL Fleet at just under $1.1 billion—or 3.5 times its forecast 2024 Ebitda—and includes a $150 million private investment in public equity, or PIPE. After expenses, the company should be left with roughly $350 million in cash on its balance sheet. Existing XL Fleet investors are rolling over their entire stakes, and will own about 70% of the combined public company. SPAC shareholders, PIPE investors, and Pivotal’s sponsors will hold the rest.
Pivotal stock is trading at $13 a share, valuing the company at roughly $1.9 billion based on 144 million shares outstanding when the deal closes. Workhorse, for comparison, has a market cap of about $3 billion. Hyliion is worth about $8 billion.
“This transaction really enables us to leverage the lead that we have established in this industry in terms of having thousands of vehicles on the road and more than 130 million miles driven by customers,” says Hynes. “It enables us to move a lot more quickly to bring new products to market and to scale the installation capacity that we’ve developed.”
XL Fleet plans to direct the deal proceeds to invest in product development, an international expansion, and potential acquisitions down the road, among other uses.
Write to Nicholas Jasinski at [email protected] and Al Root at [email protected]
