26th Mar 2021
The race is on for the next generation of flying machines. As the CEO of one company stated, “We are kind of like Tesla, meets Uber, meets the air.”1 The vision is a fleet of electrical flying taxis, affordable, convenient and environmentally-friendly. And the funding it seems, is increasingly coming from Special Purpose Acquisition Companies (SPACs).
SPACs are formed with the sole purpose of helping another company become public. Shareholders in the SPAC are essentially writing a blank check to the SPAC sponsor, pledging their money to support a future merger with a target company that the sponsor thinks has the potential to make it big. The best SPACs are led by seasoned deal-makers with credible records; individuals like Chamath Palihapitya, Bill Ackman or Michael Klein; or institutions such as Goldman Sachs, JPMorgan, Bank of America or Citigroup. But it’s not enough that they have had past success. Their role in a SPAC is to identify strong growth potential, the private companies that are working towards the solutions of tomorrow.
SPACs have overtaken traditional IPOs in 2021 – the graph below shows how this happened gradually over 2020; this year a new SPAC is formed every 5 days and SPACs have already raised over $38 bn, which is more than in the whole of 2019.
If investors are taking SPACs seriously as a way to get in early on promising mergers and acquisitions, then perhaps it’s worth a closer look at some of the targets these SPACs are going for. Recent news indicates that a number of companies involved in the development of electric Vertical Take Off and Landing (VTOL) vehicles are in talks to go public via SPACs.
Joby Aviation, a California-based venture-backed aerospace company, has been working on its VTOL for over 10 years. It partnered with NASA in 2012 and revealed its full scale protype in 2017. It is currently in the process of receiving commercial certification, hoping to launch operations in 2024. The Joby aircraft should take off and land vertically, be flown by one pilot with four passengers and create zero emissions while it reaches speeds of 200 mph over a 150mile range. Joby already has the backing of Toyota and in December 2020 acquired Uber Elevate, the renowned taxi company’s air division. It recently announced that it will go public via Reinvent Technology Partners, a SPAC run by LinkedIn co-founder Reid Hoffman and Zynga founder Mark Pincus. The deal values Joby at $6.6 bn, and the company is set to receive $690m from the cash Reinvent raised as a SPAC, and $835m from accompanying PIPE (private investment in public equity) capital.
Joby is not the only VTOL firm looking for the SPAC route to cash injection. SPAC Atlas Crest Investment Corp., which raised $500m when it IPO-ed in October 2020, announced its merger with Archer Aviation in February 2021. Archer’s VTOL can fly up to 60 miles at 150 mph with no audible sound pollution. It is being targeted for “urban exploration and the great outdoors,” and aims to launch an air taxi service in Los Angles by 2024.
German electric air taxi developer, Lilium, is also reportedly looking for a SPAC to take it public. It has exhibited its 5-seater VTOL since 2017, but now says it has a 7-seater in the works, which it says will be ready for test flight in 2022. Lilium is aiming for longer range intercity transfers, and claims its air taxi will reach speeds of 300 kmph with a range of 300 km. It has previously raised capital from China’s Tencent, Skype co-founder Niklas Zennstrom’s fund Atomico and Tesla backer Baillie Gifford. However, some are skeptical about its current plans and timespan.2
Indeed it has been suggested that SPACs might be especially well suited (for the good and the bad) to companies developing such avant-garde technologies.3 This is because a SPAC deal does not require the target company to divulge as much information as in a traditional IPO process. The regulatory framework is less, relying on the business savviness and due diligence of the sponsors to spot growth potential. This is where a SPAC ETF has the potential to really add value. On average, the SPAC market is booming and there are plenty of success stories – DraftKings, Virgin Galactic, Immunovant, QuantumScape – but it remains hard to know which are the best SPACs to buy.
A SPAC ETF offers exposure to this exciting space, to the cutting-edge firms exploring hydrogen trucks and emission free commercial air taxis, but potentially mitigates the risk of over exposure to one particular SPAC. Defiance’s first SPAC ETF (SPAK) tracks a rules-based, weighted index of SPACs both in the pre-merger “blank check” stage (40% of the index) and for two years following the merger (60% of the index). The Index includes the most liquid, compelling and innovative SPACs and its constituents are reviewed monthly to ensure that the ETF captures the potential dynamism of the SPAC space. If SPACs are set to help VTOL vehicles take off, SPAK could help you fasten your seatbelt and enjoy the ride.
1 “A SPAC Fuels the Takeoff of Electric Air Taxis,” Nicholas Jasinski and Al Root, Febrary 26, 2021. https://www.barrons.com/articles/a-spac-fuels-the-takeoff-of-electric-air-taxis-51614387203
2 “Lilium’s New Course: On Verge Of Going Public, It’s Working On A Bigger Air taxi. Can it deliver?” Jeremy Bogaisky, February 10, 2021. https://www.forbes.com/sites/jeremybogaisky/2021/02/10/lilium-evtol-spac-air-taxi/?sh=509c53ba627c
3 “Lilium’s New Course: On Verge Of Going Public, It’s Working On A Bigger Air taxi. Can it deliver?” Jeremy Bogaisky, February 10, 2021. https://www.forbes.com/sites/jeremybogaisky/2021/02/10/lilium-evtol-spac-air-taxi/?sh=509c53ba627c