The SPAC Odyssey: It's still about value
Sponsors and investors behind Special Purpose Acquisition Companies (SPACs) must discriminate carefully and focus on a target company’s essential value when seeking to identify the ultimate winners in the advanced transportation space.
Celerity05 was asked to research and recommend companies to a SPAC amid its search to find valuable companies to take public.
So what’s a SPAC?
A SPAC is a company with no commercial operations, formed strictly to raise capital through an initial public offering (IPO), for the purpose of acquiring an existing company.
They don’t make products and don’t sell anything. A company may go public through a SPAC versus an IPO because the process can be accomplished more quickly, with lower costs and less extensive financial disclosure and reporting requirements than an outright IPO.
They’ve been around for decades, but in recent years, they've become more and more popular. Over $80 billion was raised in 2020 by 248 SPACs, and that amount has been surpassed by this date in 2021. As a reference, in 2014, $1.8 billion was raised by 12 SPACs.
The current frenzy around SPACs being formed as a means for private companies to go public using an alternative method to the traditional IPO process is a phenomenon that will continue to impact those of us operating in the advanced transportation space.
Finding the winners
Thousands of new private technology entrants have entered the world of advanced transportation, ranging from recent startups to years-long operators that are profitable and growing. Identifying which of these thousands of players will ultimately prevail as market leaders is the real challenge.
The recent trend of SPACs with larger and larger capitalizations have contributed to skyrocketing valuations even with fewer companies in the market boasting qualified financial and operating characteristics which would justify being selected to go public.
A very disciplined, careful vetting process is therefore needed to identify the ‘gem’ companies that will deliver consistent performance and growth over time in a more complex and competitive transportation ecosystem.
Focusing on the valuation basics helps to ensure the SPAC sponsors, the target company, and the retail investors will eventually win after everyone else has profited from the company going public through the SPAC.
A current target of SPACs: advanced transportation and mobility
As I searched for recommended companies for a SPAC, I focused on an area of transportation, logistics, and mobility (TLM) that was barely being looked at by SPACs at the time; advanced aerial mobility (AAM), air taxis, unmanned aerial vehicles (UAVs), unmanned traffic management (UTM), and autonomous vehicles – above, on, and below ground.
Identifying the right company isn’t easy, because:
1. The use-case or real value delivery often isn’t easily defined or understood
2. The TLM ecosystem that these technologies will deploy into, is still evolving
Investing in these companies requires a greater understanding of the real value of the technology and what tomorrow’s TLM systems will require.
I interviewed dozens of leaders – tech companies, investors, technologists, and TLM industry in TLM – to identify the criteria for evaluation, to evaluate real use-cases, and to better understand the make-up of future TLM ecosystem.
In previous blogs I outlined how Celerity05 focuses on the essential value of a company.
Special considerations for advanced transportation and mobility companies
In addition to previous criteria identified in previous blogs, companies who met the following added criteria were considered favorable in my review and were the ones I recommended – as I believed they would be more likely to provide sustainable value:
1. Have management teams who understand and respect the transportation system their technology will be deployed into;
2. Have strong reputations with transportation, technology, government, and regulatory leaders;
3. Have a clear understanding of the use-case or customer value of their technology;
4. Understand their technology will be part of a larger ecosystem of value delivery;
5. Understand that, as a participant in the larger ecosystem, they will have to collaborate with others to ensure a safe, valuable system. Because going it alone will harm the entire ecosystem, and as such, the valuations of all companies in the ecosystem.
...and to emphasize point number 5, read the comments from one of my blog reviewers; a widely respected 30+ year industry leader and expert:
“Jim – my quick sense is that the “go it alone” thinkers are challenged because (1) it’s a sign they may not fully understand the entire ecosystem they need to fit with (market dynamics, regulations, operational realities, etc.), and (2) anyone proposing to buck the current ecosystem will face an inevitable backlash from established players (rightly or wrongly) trying to show that the new player’s approach is risky, dangerous, unfair, etc.
There IS a chance that a go-it-aloner could succeed in their area and reap an outsized reward (Apple iTunes as an example), but in a highly regulated environment, especially a safety-regulated environment, a jump to something very new has to have the very good right idea coupled with the resources/smarts to overcome 1 and 2 in order to succeed . . . so a much higher risk endeavor.”
The more we focus on using the right criteria – with the right companies – the better the return from investments and the sooner we’ll realize the real value of future TLM systems.