Shares of DiamondPeak Holdings, a special purpose acquisition company, jumped 21% on Monday after the company announced that it will merge with electric vehicle company Lordstown Motors. The combined company will trade on the Nasdaq under the new symbol "RIDE."
The deal represents two areas of particular investor interest this year: special purpose acquisition companies (SPACs), as well as electric vehicle start-ups.
SPACs are also known as blank-check companies, since investors fork over money without knowing when, or even what for, their capital will be used. Once the SPAC goes public, the goal is then for it to acquire or merge with a private company, thereby taking it public.
Amid market uncertainty and a lackluster IPO market, SPACs are on pace to raise a record amount of capital this year, according to data from Dealogic.
The merger between DiamondPeak and Lordstown Motors, which is expected to close in the fourth quarter of 2020, represents at least the third deal between a SPAC and an electric vehicle start-up this year.
In June Nikola Corporation began trading after a reverse merger with VectoIQ, and in July electric vehicle start-up Fisker said it would merge with Spartan Energy Acquisition, a special purpose acquisition company backed by Apollo Global Management. Investor enthusiasm for the EV space comes amid a more than 240% jump in shares of Tesla this year.
But while investors initially piled into Nikola — sending shares up 150% in the first four days of trading — some of that enthusiasm has since cooled, and on Friday the stock closed at $30.
With more and more players entering the space — start-up EV maker Rivian also announced in July that it raised $2.5 billion in fresh financing — competition is growing. Additionally, Tesla's past delivery issues underline just how difficult it can be to bring an electric vehicle to market.
According to Monday's press release, $675 million of expected gross proceeds will be used for the development and commercialization of Lordstown's all-electric pickup, called the Lordstown Endurance.
Since the prototype for the pickup truck was revealed on June 25, the company said it has received more than 27,000 pre-orders, which equates to more than $1.4 billion in potential revenue. The bulk of the reservations are from commercial fleet customers. In November 2019 Lordstown Motors purchased a 6.2 million square foot former General Motors assembly plant in order to speed its production process.
The pro forma implied equity value of the merged company is roughly $1.6 billion, which includes $75 million in investments from General Motors as well as commitments from institutional investors including Fidelity Management.
DiamondPeak raised $250 million in its IPO in March 2019, with the company initially looking to target a "business with a real estate related component."
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