On February 22nd, 2021, Lucid Motors announced[1] its proposed merger with Churchill Capital Corp IV (NYSE: CCIV), combing at a transaction equity value equals to $11.75 billion. Merger with CCIV would allow Lucid to raise capital like a public company, bolstering the development and marketing of Lucid’s first luxury electrical vehicle, Lucid Air. As Lucid and CCIV planned to complete the merger in the second quarter of 2021 (April 1st – June 30th), we should be expecting to hear about the merging soon.
Lucid Motors, Inc. is American electrical vehicle manufacture focusing on the luxury cars market, the employers of nearly 2,000 American workers. Its CEO and CTO, Peter Rawlinson[2], was once the vice president and chief engineer for Model S at Tesla before he assumed leadership at Lucid Motor, a rising competitor of Tesla. Its first product, Lucid air, starting from $69,000, was notable for its 2.5 seconds 0-to 60 times. Lucid’s manufacturing base for Lucid Air, AMP-1, has an annual production capacity of around 34,000 vehicles. With more funds, Lucid plans to expand its manufacturing facilities and expect the annual productivity of 365,000 vehicles in the coming years. Unfortunately, Lucid has fallen behind its planned schedule (Lucid Motors produced only 577 cars in 2021), and Rawlinson acknowledged that “[t]here’s always gonna be weak links when you’ve got an international supply base of notionally around 250 suppliers”. However, he remained relatively optimistic about the future in his May 25th interview[3], affirming that 20,000 units next year is “realistic.”
The merger between Lucid Motors and Churchill involves the ever largest special purpose acquisition company (SPAC) related common stock private investment in public equity PIPE. Lucid Motors is planning to raise $4.6 billion through the merger, including $2.1 million from CCIV and another $2.5 billion from fully committed (PIPE). With a 50% premium added, Lucid’s initial Pro-forma equity was valued at approximately $24 billion, bringing a transaction priced PIPE at $15 per share. The merger has caught some attention[4] on Wallstreet, partly because investors are interested in the merger would push the delivery of Lucid Air forwards. Despite the continuously delayed plan, Lucid Air presents itself as a promising company. In its investor presentation of 2021[5], Lucid expects annuals total revenue of $2.2 billion in 2022, $5.5 billion in 2023, and $22.8 billion by 2026. The $22.8 billion total revenue would mean delivering over 251,000 vehicles and an EBITDA of approximately $2.9 billion.
However, not everyone shares the same confidence as Rawlinson and CCIV. After Lucid and CCIV announced their merger plan, CCIV’s stock dropped drastically from $62 per share on February 22nd to $35 when the market close on 23rd [6]. A reason for the drop[7] can be the overall drop in the enthusiasm of new electrical vehicle brands. Moreover, people are starting to realize the competitive role traditional automakers play in the EV market. For example, Volkswagen’s ID.3 has beaten Tesla in Europe. Questions about Lucid’s continuously postponed delivery also raise concerns that jeopardize its impression in front of investors.
As Covid viruses continuously mutate and the pandemic does not seem to end soon, we can hardly tell what difficulties Lucid would encounter on its way to delivery and whether it would succeed in becoming a world-class VE manufacturer. However, its merger with CCIV is going well so far and should be remembered as a bold attempt to go public and raise a significant amount of capital by merging with a SPAC.
A SPAC like Churchill is a company that usually has no commercial operation to generate profit for itself. Instead, it raises capital through an IPO and uses the money to acquire an existing company in a targeted industry. Usually, while founders may have a particular company to merge within their minds, they don’t explicitly identify it to avoid extensive disclosure during the IPO process. After a SPAC raises enough funds, it held them in an interest-bearing trust account until the SPAC finds a company to acquire. The funds are not allowed for purposes other than that acquisition and will be returned to investors if the SPAC fails to find a company to acquire and is therefore liquidated.
Compared to a traditional IPO, going public through a merger with a SPAC produces at least two advantages[8] to small companies’ shareholders. First, selling their company to a SPAC may bring them more money than selling it to a traditional private equity deal. SPAC purchases a company at a price sometimes 20% higher. In addition, since SPACs are usually run by professional personnel experienced in raising funds, the IPO can be faster, and the acquired companies’ shareholders can worry less about the process. Some retired and semi-retired senior executives sometimes favor SPACs as short-term opportunities, and a partnership with them can make the process pleasantly smooth.
While merging with a SPAC provides entrepreneurs an excellent opportunity to see their dream come true, selling one’s company to someone else is always a huge decision to be made. If you consider merging your company with a SPAC or need any legal assistance with merger and acquisition or security laws, please contact us. You have created a great company and witnessed its growth to prosperity, and we will be honored to help you build it into a legacy of yours.
Wilson Bradshaw LLP is a boutique securities law firm in Irvine, California, and New York City. We offer the advantage of a highly focused, experienced legal team that understands business realities. Our practice is dedicated to helping businesses prosper by providing cost-effective services without compromising quality. Please visit our website or contact us through email for anything you need.
Reference:
[1] https://www.lucidmotors.com/media-room/lucid-motors-public-merger-churchill-capital-corp-iv
[2] https://www.linkedin.com/in/peter-rawlinson-1a910625/
[3]https://www.sec.gov/Archives/edgar/data/0001811210/000110465921072038/tm2117601d1_425.htm
[5] https://lucid-ir.s3-us-west-2.amazonaws.com/lucid-investor-presentation-february-2021.pdf
[6] https://www.nyse.com/quote/XNYS:CCIV
[7] https://marketrealist.com/p/cciv-stock-fall-before-lucid-merger-date/
[8] https://marketrealist.com/p/cciv-stock-fall-before-lucid-merger-date/
