Electric-vehicle charging firm Volta Industries is set to debut on the New York Stock Exchange Friday, after closing a merger with a special purpose acquisition company, or SPAC, on Thursday. It’s raising less money than originally planned and entering a crowded-but-fast-growing market.
Tortoise Acquisition Corporation II (ticker: SNPR) agreed to merge with privately held Volta back in February, a deal approved by shareholders on Wednesday. The SPAC shares’ ticker symbol changes to “VLTA” on Friday.
SPACs raise money from investors and go public in initial public offerings, then go out and find an operating company to combine with. Once the companies merge, the start-up gets access to the SPAC’s cash and stock-market listing, and the SPAC effectively ceases to exist.
There is an extra wrinkle, however: SPAC shareholders have a redemption option, meaning that around the time of a merger they can elect to swap their shares for an equal proportion of the SPAC’s cash. That tends to be around $10. Amid a broader selloff in the SPAC market, Tortoise II shares have been trading just below that level in recent weeks.
Some 70% of Tortoise II shareholders elected to redeem on Wednesday, asking for $242.2 million back out of the SPAC’s $345 million trust. Shareholders representing 59% of Tortoise II’s shares outstanding voted on the deal; 96% of them were in favor. Yes, SPAC shareholders can vote in favor of a deal but then still withdraw their cash.
Luckily for Volta, its deal with Tortoise II also included a $300 million private investment in public equity, or PIPE, from institutional investors like BlackRock and Fidelity. After redemptions, Volta will raise around $400 million before expenses in the deal, not $645 million.
CEO Scott Mercer tells Barron’s that the smaller capital raise doesn’t impact the company’s growth plans or timeline. It aims to get to 26,000 charging stations by the end of 2025, from around 2,000 today. Financial forecasts for 2025 are for $252 million in Ebitda—earnings before interest, taxes, depreciation, and amortization—on $826 million in revenue. The company sees sales about doubling each year from 2020’s $25 million.
Volta-Tortoise II isn’t the only SPAC merger to get hit with a wave of redemptions this week. Good Works Acquisition (GWAC) shareholders approved a merger with Bitcoin company Cipher Mining Technologies on Wednesday, but redeemed $128.4 million out of its $170 million trust. That deal also included a $425 million PIPE.
When the SPAC market enters periods of weakness like the current one, arbitrage-focused funds tend to swoop in and buy shares trading at discounts to their trust values. They’re not interested in investing in the future post-SPAC company, just earning the difference between the stock’s price and its trust value. It is as close to a risk-free trade as you can find, and can be especially attractive in a world of rock-bottom interest rates and bond yields. That is why Volta and Cipher Mining saw so many redemptions this week.
Volta’s business model is a little different than the half-dozen other EV charging stocks on the market. Some of its peers are focused on selling equipment and software for others to operate charging stations. Others want to run their own network, and charge EV drivers for time or electricity used.
Volta’s strategy is, essentially, based on consumer behavior. It wants to locate its stations to maximize station utilization and drive traffic to retailers, some of whom will pay Volta for putting its charging stations in front of their stores. It’s willing to locate in higher-value real estate because that is where people want to be. The company can generate revenue from its retail partners, by selling advertising space on its chargers’ large screens, and by charging for the electricity being used by EV drivers.
One thing that has changed since Volta announced its plans to go public is the passage of President Biden’s $1 trillion infrastructure bill. That has money, which the federal government can allocate to states, for building EV charging networks.
“The actual [spending] number matters less than the fact that there is a bully pulpit pushing this,” says Volta’s co-founder and president Chris Wendel. “It’s an all parts of government push to electrify as part of a broader climate agenda which we are fully aligned with.” Volta management adds that tax credits for building EV infrastructure are another important incentive that the government could continue. Those are so-called 30 C incentives.
Volta announced its plans to merge with Tortoise II in early February. Shares are down 43% since then. Many SPAC stocks have sold off significantly from their February highs. The Defiance Next Gen SPAC Derived ETF (SPAK) is down about 33% since Volta announced its deal. That ETF is also down about 35% from its mid-February 52-week high.
Rising interest rates because of inflation fears that built earlier in 2021 are one reason for SPAC stock underperformance. Higher rates hurt richly valued start-up companies more than others, and make more speculative assets less attractive. A rotation out of small-capitalization stocks hasn’t helped either. The Russell 2000 Index is down about 2% since mid-February. The S&P 500 and Dow Jones Industrial Average are up about 15% and 12%, respectively, over the same span.
Volta is the third EV charging-related start-up to close a SPAC merger and become publicly traded, along with EVgo (EVGO) and ChargePoint (CHPT). Two additional companies have deals pending: EV Box is merging with TPG Pace Beneficial Finance (TPGY) and WallBox is merging with Kensington Acquisition Corp II (KCAC). Beam Global (BEEM) and Blink Charging (BLNK) became publicly traded through traditional initial public offerings.
The first SPAC from the team behind Tortoise II took Hyliion Holdings (HYLN) public last year. Its third—TortoiseEcofin Acquisition III (TRTL)—went public last month and also has a sustainability focus. Former U.S. President Bill Clinton is on that SPAC’s board of directors.
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