Reverse mergers have replaced traditional IPOs this year as the preferred method for auto industry players to go public. On August 24, the lidar startup Luminar followed rival Velodyne and electric-vehicle makers Nikola, Fisker, and Canoo by announcing its plan to merge with Gores Metropoulos.
Gores is a special purpose acquisition company, or SPAC, a firm that raises money and goes public with the sole intention of buying another company instead of making its own products or services. Once the purchase is complete, the SPAC merges with the company it bought, and investors who bought the SPAC's stock become shareholders of the new company.
For Luminar — best known for making lidar sensors, which emit pulses of light to detect the objects surrounding a vehicle — going public through a reverse merger was more appealing than a traditional IPO because it offered more certainty around the amount of money it would be able to raise and the valuation it would receive, CEO Austin Russell told Business Insider. Especially in the midst of a pandemic.
"We probably wouldn't do a normal IPO during this time, but given that you have with the SPAC structure even greater certainty around value," and the amount of capital you'll raise, "it definitely became a very attractive option," he said.
Before a traditional IPO, a company has to pitch itself to a variety of institutional investors and, with the help of an investment bank, decide on a share price that will make it and its investors happy. With a reverse merger, the private company only has to negotiate a sale price with the SPAC, though institutional investors may also pitch in. In Luminar's case, it will have access to $400 million Gores raised and an additional $170 million from a group of investors that includes Peter Thiel, Volvo Cars Tech Fund, and VectoIQ, the SPAC that bought Nikola.
The recent surge of reverse mergers, which also includes Virgin Galactic and DraftKings, has raised the stature of SPACs, which in the past were viewed as vehicles for "second-rate deals," Russell said. Gores was a particularly attractive choice for Luminar given its tech and automotive expertise.
"That all made a significant difference in going down this route," Russell said.
Russell said Luminar began to think about the timing of an IPO a year or two ago, and decided it didn't want to take that step until it had signed a deal with an automaker to include its tech in a production vehicle, a move the company felt would make it more appealing to public investors. Luminar hit that milestone in May, when it announced that Volvo will install its lidar sensors in production vehicles starting in 2022. Luminar will also contribute software and computing hardware to Volvo's upcoming autonomous highway-driving system, Highway Pilot, Russell said. To date, the cost and complexity of most lidar systems have limited the fully autonomous vehicles being developed by the likes of Waymo and Cruise.
While the idea of pursuing an IPO seemed unappealing after the coronavirus devastated the global economy, Luminar reconsidered after financial markets recovered and reverse mergers became more popular.
"There's always some opportunistic component to these. Would we have predicted we would have gone exactly down this route at exactly this value just after the series-production win?" Russell said, referring to the Volvo deal. "Probably not."
Are you a current or former Luminar employee? Do you have an opinion about what it's like to work there? Contact this reporter at mmatousek@bjinnox.com, on Signal at 646-768-4712, or via his encrypted email address mmatousek@protonmail.com.
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