Electric delivery van manufacturer Arrival could get a new financial lease on life via a second special purpose acquisition company merger. Second-chance SPACs are rare and fraught with risk.
“For just the second time this year, we have seen a de-SPAC company required to make a deal with another SPAC to raise capital,” Jonathan Browne, senior investment analyst at RiverNorth Capital Management, told FreightWaves. “This speaks volumes about the tough capital markets environment firms find themselves in at present, especially those with high cash burn rates.”
The merger between Luxembourg-based Arrival and Kensington Capital Acquisition Corp. V was announced after markets closed on Thursday. Kensington previously sponsored SPAC mergers with battery makers Amprius and QuantumScape and charging company Wallbox.
Manchester, England-based connected vehicle data startup Wejo Group announced a second SPAC merger in January, the first company known to merge with a second so-called blank check company.
Arrival has been slashing costs and trying to raise money to stay afloat.
“While there are many companies making electric vehicles today, this is a next-generation delivery van that incorporates over 200 patents and $1 billion of capital,” Justin Mirro, chairman and CEO of Kensington Capital, said on a conference call Thursday.
“What gets us most excited about Arrival is that it has developed a completely new vehicle, from the ground up, that uses advanced materials and manufacturing technologies to increase functionality while reducing costs.”
The company went public in March 2021 following a merger with CIIG Merger Corp., which provided the 8-year-old company with about $650 million.
Fresh funding needed at Arrival
But that money is gone. Arrival is clinging to life with a $300 million equity line of credit. That was signed in March with New York investment bank Westwood Capital LLC.
The new merger is expected to close in the second half of the year. It puts the enterprise value of Arrival at $524 million. That is about 10% of the $5.4 billion valuation it had when the CIIG merger was announced in 2020.
On a pro forma basis, the $283 million Kensington is holding in trust should mean about $468 million to Arrival. That assumes no investors cash out in advance, which reduces the proceeds companies receive at closing.
It is unknown how much cash the company will actually receive. It is also unknown much and in what form Kensington is taking for its promotion of the SPAC. The second SPAC suggests Arrival was unable to raise new capital on its own.
SPAC mergers in steep decline
Arrival should expect redemptions to reduce what it receives from Kensington, leaving it to rely on its equity line of credit with Westwood, TD Cowen analyst Jeffrey Osborne wrote in an investor note Monday.
SPAC Insider lists just 11 SPAC mergers with a total enterprise value of $902 million so far this year. That compares with 613 with a combined enterprise value of $165.2 billion in 2021.
Arrival finalized its first SPAC combination in March 2021 with CIIG led by Peter Cuneo, the former CEO of Marvel Entertainment. Arrival’s high-water valuation of $13 billion has shrunk to about $78 million.
Arrival differentiates itself in the delivery van space by designing and producing zero-emission vehicles using its proprietary hardware, software and robotics technologies in low-cost microfactories.
“Arrival is unique among recent EV startups in also developing manufacturing technology in-house,” Mike Abelson, CEO of subsidiary Arrival Automotive, said on the conference call. “We have 51 patents granted or pending for robotics used in our manufacturing processes.”
The company has pared its ambitions to make electric buses and purpose-built ride-hailing cars for Uber to focus on its XL van. A Class 1 microvan, also dropped from the original manufacturing plan, is being used to test technologies that Arrival plans to incorporate in factories it has leased for assembly operations in Charlotte, North Carolina
The company cut 800 jobs in January to reduce monthly cash burn. In November, Arrival issued a going-concern warning, meaning it doubted it had enough cash to keep operating for another year. It has since said it believes it can operate through 2023.
“We like Arrival’s unique approach to electric vehicle production leveraging microfactories and vertical integration,” Osborne wrote. “However, we note that the stock is extremely high risk and potentially high reward given where we are in the technology and production cycle.”
Arrival shares closed 16.31% higher at 14.19 cents Monday. Arrival shareholders on Thursday approved a 1:50 reverse stock split that should help avoid a risk of delisting from the NASDAQ where Arrival shares have traded below $1 each for more than 30 consecutive trading days.
Editor’s note: Adds investment firm comment, another company trying second SPAC and updates with Arrival closing stock price.