Riding the Re-SPAC Wave

Welcome to The Rundown! Each week we'll identify and break down for you SPACs that are capturing market share and making an impact.

Happy Sunday Friends, 

In the ever-changing landscape of SPACs, a new trend has emerged that has got talking: Re-SPACs. Last week, electric vehicle startup Arrival announced its intention to Re-SPAC with Kensington Capital Acquisition Corp. V, signifying a growing interest among De-SPAC companies in exploring alternative capital-raising strategies.

Traditionally, SPACs have been a popular vehicle for ushering businesses into the public markets. However, the market has become saturated with a plethora of SPACs and a dwindling number of viable targets. This intense competition has prompted SPACs to explore new avenues for growth, such as introducing smaller companies to public markets, targeting publicly listed companies abroad in regions like the UK and , or merging with previously SPAC-listed companies that now face cash shortages.

As these Re-SPAC candidates make their second attempt at going public, the question arises: will they succeed, or are they headed for another disappointment?

Wejo: A Comeback Story for the Connected EV Startup?

In the realm of connected vehicle data, Wejo Group Ltd. made waves in 2014 by developing innovative products and services that revolutionized transportation. However, despite its early promise and public debut in 2021, the British company struggled to generate revenue, revealing a gap between its vision and the reality of the market. Now, as Wejo prepares for a second attempt to go public through a Re-SPAC, investors are keen to know whether the company can overcome its challenges and make a strong comeback. Wejo's collaborations with major automakers, such as Ford and General Motors, allowed it to gather over 14 billion data points from connected vehicles, fueling its four primary offerings: Journey Intelligence, Traffic Intelligence, Vehicle Movements, and Driving Events. However, the lack of standardized data across the auto industry hindered Wejo's ability to create a unified data marketplace, limiting its revenue generation.

Facing a precarious financial position and a dwindling cash balance, Wejo announced plans to merge with TKB Critical Technologies I, a blank-check firm, securing up to $100 million in cash. The company also raised $10 million in convertible debt from General Motors Co. To ensure a successful second attempt, Wejo has embarked on a series of strategic initiatives aimed at accelerating revenue and reducing its cash burn rate. These measures include cost reductions, targeted public sector market growth, audience and media measurement solutions, end-to-end insurance products, and innovative SaaS automotive solutions. By implementing these changes, Wejo aims to reduce its cash burn by over 50% and achieve a free cash flow breakeven point by mid-2024, year earlier than initially projected. As Wejo moves forward with its Re-SPAC plans, investors are closely watching to see if the company's focused approach and strategic initiatives can help it overcome past struggles and emerge as a strong player in the connected vehicle data market.

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Arrival: An EV Upstart's Struggle and Second Chance

Arrival SA, an electric vehicle (EV) upstart, initially captured attention with its unique approach to zero-emission vehicle production, utilizing proprietary hardware, software, and robotics technologies in low-cost microfactories. Despite these promising beginnings, the company has faced a series of setbacks, forcing it to seek a second blank-check merger after approximately two years as a public company. Money-losing operations, a business riddled with delays, and a turbulent economic environment contributed to Arrival's decline. With a spiraling stock price, the company warned in November that it could face bankruptcy, as tapping an at-the-market platform became impossible. This stark reality marks a dramatic shift from the optimism that accompanied Arrival's initial public debut after its first SPAC merger. To survive, Arrival has scaled back its ambitions, abandoning plans for electric buses and purpose-built ride-hailing cars for , concentrating instead on its XL van. Though the company has dropped its original manufacturing plan for a Class 1 microvan, it continues to use the vehicle for testing technologies to incorporate into its assembly operations in Charlotte, North Carolina.

Arrival's valuation plummeted from $5.4 billion in its initial CIIG deal to a pro-forma enterprise value of $524 million in its Kensington deal. The company's revenue projections have also shrunk, with analysts now anticipating a mere $1.5 million in revenue next year after about $1 billion in losses in 2022. The company's struggles mirror those of other EV hopefuls like Canoo, Faraday Future Intelligent Electric, and , which also merged with SPACs at $10 per share and now trade under $1. In March, Arrival secured a lifeline with a $300 million equity line of credit from New York investment bank Westwood Capital. As Arrival embarks on its second SPAC deal, investors will closely monitoring the company's progress to determine if it can overcome its challenges and regain its footing in the competitive EV market.

Bottom Line 

As the landscape of SPACs continues to evolve, these blank-check firms are increasingly exploring alternative targets, including existing De-SPACs that are running out of cash. A variety of companies, from space startups and EV manufacturers to quantum computing firms, are burning through money at astounding rates. For these businesses, raising capital through Re-SPAC deals may offer a lifeline, helping them avoid bankruptcy like some of their De-SPAC predecessors.

Re-SPAC deals also present benefits for SPAC investors, as they often provide better terms to discourage redemptions. However, the growing prevalence of Re-SPAC deals does not guarantee a reversal in fortune for struggling De-SPACs. Ultimately, the success of these companies hinges on their ability to turn around their operations and address the issues that led to their financial difficulties in the first place. Only time will tell whether these De-SPACs can successfully pivot and thrive in their respective markets, or if they will continue to struggle despite the second chance they've been given.

Source: Riding the Re-SPAC Wave