Hyliion, a company specializing in heavy duty electric-powered trucks, announced its merger with Tortoise Acquisition Corp, a special-purpose acquisition company (SPAC) at the end of June. The deal is on schedule to close this fall.
The Texas-based trucking company, founded by former auto racer and engineer Thomas Healy in 2015, produces battery-powered solutions for Class 8 trucks. Commercial truck classifications are based on a 1-8 rating scale, with Class 8 trucks being the heaviest with a weight exceeding 33,000 pounds. Hyliion has two main product lines. One is a system that hybridizes existing diesel-powered trucks. The other, called Hypertruck ERX, is a full electric drivetrain with recharging capabilities while the truck is in motion using a hydrogen fuel cell or natural-gas-powered generator.
Since its June merger announcement, the share price of Tortoise Acquisition (ticker: SHLL) has spiked. In the ten days following the company’s announced deal, shares increased by 130%. The deal is a reverse merger, which occurs when an existing public company acquires a private company and then the private company operates under the public company structure. The private company often purchases a controlling stake in the stock of the public company and exerts management powers. A reverse merger can be an effective strategy for private companies seeking to bypass the lengthy process of going public through a traditional IPO.
The plan is that once Tortoise merges with Hyliion, the newly merged company will go by the name Hyliion Holdings Corp. and the former Tortoise shares will trade under ticker symbol “HYLN” on the NYSE. Hyliion will receive proceeds from an upsized $325 million PIPE, or private investment in public equity. PIPE transactions allow private investors to purchase public company shares at below market valuations. Another $235 million infusion will come from cash held in trust, bringing the total amount of cash available following the closing date to $560 million.
Hyliion is riding the clean energy trend. Comparisons have been drawn to Tesla and Nikola, automotive companies also focused on lowering carbon emissions. However, unlike Tesla and Nikola, Hyliion doesn’t build vehicles. Rather it provides the powertrain technology that can be integrated into customers’ existing trucks, whether old or new. “The goal was to be able to allow them [customers] to still buy the truck they already know and love and have it with a brand-new powertrain that will really revolutionize their logistics,” said the company’s 28-year-old CEO.
Since its founding in Healy’s dorm room at Carnegie Mellon University in 2015, Hyliion has rapidly grown and in 2018 it moved its headquarters to Austin, Texas. The company plans to use the newly raised proceeds to expand and speed up mass production of its long-range electric powertrain. Since Hyliion does not build its own trucks from scratch, it has a huge cost-savings advantage over Tesla and Nikola, which both have invested heavily in truck factories.
A special-purpose acquisition company, as known as a blank check company, is a shell company without existing business operations. After launching an IPO, a SPAC usually has two years to identify and buy a target company. Most SPACs are listed on Nasdaq, which has favorable SPAC rules. According to Nasdaq requirements, a SPAC must complete a business combination within 36 months of an IPO. However, in practice the transaction agreements shorten this timeframe to two years. The acquisition target does not have to be identified to public investors at time of the IPO. Thus, IPO investors are unaware of the company they will eventually be investing in. Although blank check companies have existed for many decades, they have attractive investor attention recently as an advantageous vehicle for their greater flexibility and potential returns.
Some recent notable SPACs include those associated with Nikola Corporation, DraftKings, Vivint Smart Home and Virgin Galactic. Electric automaker Nikola Corporation announced its deal to merge with a SPAC in March 2020, just months before Hyliion announced its planned merger with the Tortoise SPAC.
The market for SPACs has matured in recent years, with SPACs garnering heightened attention from private equity sponsors and other institutional investors. SPACs have represented 40% of the total amount raised in the 2020 IPO market. The deals are also increasingly being underwritten by bulge-bracket banks. While SPACs can be quite lucrative for the founders because they retain significant equity, SPACs have yielded mixed results overall for long-term investors.
SPACs have had a record-breaking year so far in 2020. On July 22, Pershing Square Tontine became the largest SPAC ever to go public as well as one of the largest IPOs of 2020. Run by legendary hedge fund manager Bill Ackman, Pershing Square Tontine raised $4 billion by offering 200 million units at $20 per unit. Pershing Square funds have committed to buying an additional $1 to $3 billion of units, bringing the minimum total available to spend on an acquisition target to $5 billion. Pershing Square Tontine has two years to complete a business combination.