- Arrival president Avinash Rugoobur told Insider the SPAC craze is set to slow down.
- The electric vehicle firm was valued at around $13 billion when it went public itself through a SPAC deal in March.
- 2021 is a record year for SPACs, but skeptics say the rush is taking low-quality businesses public.
- See more stories on Insider’s business page.
The red-hot Wall Street craze of businesses going public through a special purpose acquisition company — or
— will slow down, according to the head of electric vehicle firm Arrival.
Arrival was itself valued at $13 billion when it listed on the Nasdaq via a SPAC deal in March. The company builds electric vehicles for commercial customers, and was founded in 2015 by former Russian telecoms minister Denis Sverdlov.
Its president, Avinash Rugoobur, now predicts that fewer companies will eventually opt for the so-called blank check merger agreement.
SPACs are standalone companies that are set up by investors to raise money through an IPO and go on to to acquire another business. Last year, a total of 237 such shell companies in the US raised $79.87 billion, according to figures from SPAC Insider. That represented a massive jump on the record $13.6 billion raised in 2019. That trend has continued into 2021, with SPAC deals raising an annual record within three months of $87.9 billion.
In the case of Arrival, the EV company went public through a deal with CIIG Merger Corp, a shell company set up by former Marvel chief executive Peter Cuneo. Arrival, which has a commercial agreement with UPS to provide 10,000 vans in the US and Europe, was valued at around $13 billion on its debut. Its market cap has since fallen to a little under $11 billion.
“I think that honestly like any sort of new trend, the worthy ones will rise to the top, regardless of what method they use to go public,” Rugoobur told Insider.
“The SPAC trend itself I think ultimately like any first part of a major cycle will slow down. I would say you’ll end up with a fewer amount of companies (going public through a SPAC) and that’s just a normal progression.”
He added that a SPAC for Arrival “really made sense”, describing the company as being at a mature stage with more than 1,500 employees and the $1 billion order from UPS.
But the company faced some criticism for being over-priced when it listed. Though Arrival has secured deals, it has yet to technically deliver a final vehicle.
Rugoobur said the company’s valuation was tied to both its potential and the potential of the industry it was operating in. Arrival also recently announced it was working with Uber to develop a car specifically for the ride-hailing industry. The firm’s big pitch is its “microfactory” concept, shrinking the traditional auto assembly line to much smaller plants.
Some analysts have suggested that SPACs are being forced to bring lower quality businesses public. Figures from SPAC Research suggested there were as many as 370 US SPACs looking for businesses to invest in with around $118 billion in available capital.
Ross Mayfield, an investment strategy analyst at Baird, told CNBC that “lower and lower quality companies” were going public as a result of the rush toward SPACs. In April, the first week without a SPAC deal happened for the first time since March 2020.
Speaking after raising $100 million in private funding earlier this month, Dan Vahdat, the chief executive of medtech startup Huma, said that SPACs pursuing him to go public had become “more aggressive than recruiters”.
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