Electric vehicle charging company Volta Industries will debut on the New York Stock Exchange on Friday, after closing a merger with a special acquisition company, or SPAC, on Thursday. It raises less money than originally planned and enters a busy but fast-growing market.
Tortoise Acquisition Corporation II
(ticker: SNPR) agreed in February to merge with privately-owned Volta, a deal Wednesday approved by shareholders. The ticker symbol of the SPAC stock changes to “VLTA” on Friday.
SPACs raise money from investors and go public in IPOs, then look for an operating company to combine with. Once the companies merge, the start-up gains access to the SPAC’s cash and stock listing and the SPAC effectively ceases to exist.
There is an additional wrinkle, however: SPAC shareholders have a repurchase option, which means that around the time of a merger, they can choose to exchange their shares for an equal share of the SPAC’s money. That’s usually around $10. Amid a broader selloff in the SPAC market, Tortoise II stocks have been trading just below that level in recent weeks.
About 70% of Tortoise II . shareholders chosen to redeem on Wednesday, asking for $242.2 million back from the SPAC’s $345 million trust. Shareholders representing 59% of Tortoise II’s outstanding shares voted on the deal; 96% of them were in favour. Yes, SPAC shareholders can vote for a deal, but still withdraw their money.
Fortunately for Volta, the Tortoise II deal also included a $300 million private investment in public equity, or PIPE, from institutional investors such as
and Loyalty. After repayments, Volta will raise approximately $400 million before charges in the deal, not $645 million.
CEO Scott Mercer says: Barron’s that the smaller capital increase will not affect the company’s growth plans or timeline. The goal is to have 26,000 charging stations by the end of 2025, up from about 2,000 today. Financial projections for 2025 are $252 million in Ebitda — earnings before interest, taxes, depreciation and amortization — on $826 million in revenue. The company sees revenue doubling each year from $25 million in 2020.
Volta-Tortoise II isn’t the only SPAC merger to be hit by a wave of redemptions this week. Shareholders of Good Works Acquisition (GWAC) approved a merger with Bitcoin company Cipher Mining Technologies on Wednesday, but cashed out $128.4 million of the $170 million trust. That deal also included a $425 million PIPE.
When the SPAC market enters periods of weakness, such as the current one, arbitrage-focused funds tend to duck in and buy stocks that trade at discounts to their trust values. They are not interested in investing in the future post-SPAC business, only earning the difference between the share price and the trust value. It’s as close to a risk-free trade as you can find, and can be particularly attractive in a world of bottomless interest rates and bond yields. That is why Volta and Cipher Mining saw so many redemptions this week.
Volta’s business model is a little different from the six other EV charging stocks on the market. Some of his colleagues are focused on selling equipment and software for others to operate charging stations. Others want to run their own network and charge EV drivers for time or electricity used.
Volta’s strategy is essentially based on consumer behavior. It wants to locate its stations to maximize station utilization and direct traffic to retailers, some of whom will pay Volta to place its charging stations in front of their stores. It is willing to settle in higher value real estate because that is where people want to be. The company can monetize its retail partners by selling advertising space on the large screens of its chargers and charging for the electricity used by EV drivers.
One thing that has changed since Volta announced its plans to go public is the approval of President Biden’s $1 trillion infrastructure bill. That has money, which the federal government can allocate to states, for building EV charging networks.
“The actual [spending] number matters less than the fact that there is a pulpit that drives this,” said Chris Wendel, Volta co-founder and president. “It is a push from the government to electrify as part of a broader climate agenda that we are fully aligned with.” Volta’s management adds that tax cuts for building EV infrastructure are another key incentive the government could pursue. These are so-called 30 C stimuli.
Volta announces plans to merge with Tortoise II in beginning of February. Shares have since fallen 43%. Many SPAC stocks have sold off significantly from their February highs. The
Defiance Next Gen SPAC Derivative ETF
(SPAK) is down about 33% since Volta announced its deal. That ETF is also down about 35% from its 52-week high in mid-February.
Rising interest rates due to inflation fears that arose earlier in 2021 are one reason for the underperformance of SPAC stocks. Higher interest rates harm wealthy start-ups more than others and make more speculative assets less attractive. A spin out of small-cap stocks hasn’t helped either. The
Russell 2000 Index
has fallen by about 2% since mid-February. The
Dow Jones Industrial Average
have increased about 15% and 12% respectively over the same period.
Volta is the third EV-related start-up to close a SPAC merger and become publicly traded, along with
(CHPT). Two additional companies have deals pending: EV Box merges with
TPG Pace Beneficial Finance
(TPGY) and WallBox merge with
Kensington Acquisition Corp II
(BLNK) was publicly traded through traditional IPOs.
The first SPAC from the team behind Tortoise II brought Hyliion Holdings (HYLN) to the stock exchange last year. The third – TortoiseEcofin Acquisition III (TRTL) – went public last month and also has a focus on sustainability. Former US President Bill Clinton sits on the SPAC’s board of directors.