AAM & SPACs
Plans to raise billions of dollars by going public via mergers with blank-check companies.
The leaders in advanced air mobility (AAM) are storytellers, and the stories they tell are playing central roles in their plans to raise billions of dollars by going public via mergers with blank-check companies.
But the companies that follow could find it harder to tell their stories as the U.S. Securities and Exchange Commission (SEC) looks to revise the rules governing special-purpose acquisition companies (SPAC).
Archer, Joby Aviation, Lilium and Vertical Aerospace are all planning mergers with SPACs, and more deals are on the horizon as other hopefuls chase the funds needed to bring their vehicles and services to market.
At first read, the stories are similar. They describe companies with technology leadership and experienced teams positioned to be first in a trillion-dollar market with business plans that rapidly yield revenues measured in the billions of dollars.
On closer analysis, the stories differ in significant ways. They are being told through slick investor and analyst presentations as the startups work to close their mergers this year.
SPACs have become a popular way to raise capital by going public. Compared with traditional initial public offerings (IPO), SPACs can be completed faster and at a guaranteed price. Pricing of an IPO is set by market conditions at the time of offering.
But a key reason why SPAC mergers are popular in the AAM market is they allow companies yet to generate revenue to be valued based on projections of their financial potential. In this, they differ dramatically from traditional IPOs.
SPACs have been around for decades but, starting in 2019, we saw this new era where you would take a company public that couldn’t possibly go public on its own."
Kirsten Bartok Touw, AirFinance founder and managing partner at the Revolution.aero conference in June.
Attracting investment by telling growth stories is critical to companies that want to become the leaders in a market that does not yet exist and that requires billions in capital to develop, certify, produce and operate a new type of aircraft: electric vertical-takeoff-and-landing (eVTOL).
Publicly traded companies can provide guidance to investors by making forward-looking statements because they are protected from private litigation by safe-harbor provisions in U.S. securities legislation. IPOs do not have that protection and are barred from making projections.
A SPAC starts life with an IPO, and the subsequent combination with the target company, called a de-SPAC, is considered a merger and protected by safe harbor. This permits the glossy presentations laying out growth projections and justifying multibillion-dollar valuations.
That may change as, responding to the recent tsunami of transactions across multiple sectors, the SEC is reviewing the rules governing SPACs and whether they should be treated similarly to IPOs. Any move to prohibit or limit forward projections could cripple an AAM startup’s ability to attract investment.
But that lies in the future and Archer, Joby, Lilium and Vertical are on track to raise billions by going public in the coming months. Although there could still be hiccups.
Before a merger closes, SPAC shareholders vote on whether to convert their investment into a stake in the company or redeem their money. Historically this is tightly tied to how SPACs are traded—redemptions rising when shares fall below the $10 IPO price. All AAM SPACs were below $10 on July 12.
Making up this potential shortfall is one reason why SPAC transactions typically come with a PIPE—private investment in public equity—the institutional investors the SPAC sponsors have brought to the table. The nature of that PIPE is one element that differs across the AAM SPACs.