What the Heck are SPACs?

What the Heck are SPACs?

December 14 2020

SPACs, or special purpose acquisition companies, are a hot investment trend these days, especially for up-and-coming cleantech companies.  Many have performed quite strongly in the public markets, increasing their stock values 20-60% or more in a matter of weeks. Much of the excitement of these stocks is motivated by the public sector’s desire to bet on technologies that will drive the future of clean energy, including electric vehicles, batteries and advanced materials. 

A special purpose acquisition company is designed to take a company public without having to go through the traditional initial public offering (IPO) process. These “blank check” companies raise money from investors via an IPO and obtain a stock ticker on an exchange that can be publicly traded.  The SPAC will have a stated intention of using the cash raised to invest in and merge with a private company (such as a clean energy technology company), typically within 24 months. The SPAC sponsors look for a private company they believe has a strong product, team, and growth trajectory. The SPAC will then publicly announce that it has a deal to invest in the private target company.  Within a few months, the SPAC consummates the merger with the target company; the ticker symbol for the combined company is then typically changed to reflect the name of the target company.

There are some key differences between SPAC public companies and those that go through the typical IPO process. SPAC-target companies will often not have revenue or marketable products but instead have been actively performing R&D on a targeted market sector for several years. Critics charge that the rush to raise capital for these nascent companies is an effort to capture the robust valuations that companies like Tesla (stock price 14x revenue) currently command. But SPACs can also be seen to enable retail public stock investors to engage in venture capital or private equity investing, with all of the pitfalls and potential upsides this entails.

Not all SPACs are created equal and CAPM is not opining on the value of these stocks. Since many SPAC target companies do not have revenue or products on the market, many of their claims for future growth are speculative and should be taken as such.


Climate Change Crisis Real Impact Acquisition Corp (CLII.U) is a SPAC that has gone public but has not yet identified a target company.  It is led by ex-NRG CEO David Crane and an all-star cast of clean energy execs from Credit Suisse, GE, Goldman Sachs, NYSERDA, and Green Mountain Power.  CLII raised $200M in its September IPO and is on the hunt for a company focused on carbon avoidance and removal (distributed generation, energy efficiency, EVs). In a recent interview, Crane summed up the momentum for SPACs in this way: “Previously, if you had a company with a big, risky, exciting growth story that required capital, it could only prove it out in private markets. Public markets, sometimes fairly and sometimes unfairly, were deemed to be focused on short term results to the exclusion of all else. Nikola has shown us the incredible level of interest from the public market for untapped clean sectors like hydrogen-powered transportation, which was so early stage that it previously would have been limited to venture capital.”


Canoo Holdings is a target company that plans to merge into a SPAC (ticker: HCAC) in the coming weeks. Canoo is led by a former BMW executive and has received an investment from Blackrock. It has also partnered with Hyundai to create an innovative “skateboard” chassis of batteries (designed by an ex-Tesla/Space-X engineer) that will be placed under space-age looking vehicles that consumers will use via a subscription service. Canoo is targeting a combination of the electric vehicle (Tesla) and “transportation as a service” (Uber, Lyft) markets. Its first products should hit the market in the US in mid-2022.


Hyliion (“hybrid-lithium-ion,” ticker: HYLN), which completed its merger into a public SPAC on October 2, is one of the few SPAC-backed public companies with products currently in the market. HYLN makes electrified powertrain solutions for commercial trucks. Hyliion’s founder/CEO is 28-year-old Thomas Healey, who invented a regenerative braking system at Carnegie Mellon before forming the company and partnering with US auto parts giant Dana, Inc. After HYLN’s SPAC merger closed, its stock has since traded as high as $50/share before dropping to $18 currently ($3.9 billion market cap). Electric trucks will be a crucial component of the decarbonized energy future and Hyliion hopes to play a big part, but as of now, the company has only produced a handful of electric vans and fueling stations.


QuantumScape (ticker: QS) is designing a solid-state electric vehicle battery that could provide a step-change for EVs in the future, with higher energy density, faster charging, lower cost, longer life and fewer safety risks than current lithium-ion batteries. QS received early backing from Microsoft founder Bill Gates and secured a strategic investment from Volkswagen. Eliminating the liquid electrolyte in the current lithium-ion batteries in favor of solid-state technology is considered the holy grail for EV batteries, but several technological barriers remain for commercialization of this technology. QS does not plan to have products widely available in the market until 2024 and thus expect its stock to be volatile for the time being. Notwithstanding, just last week QS announced that its electric car batteries can charge up to 80% in 15 minutes. QS merged with its SPAC in September at a $3.8 billion valuation and its stock had traded up from $10 to $40 per share, before nearly doubling again to $75/share last week on news of the charging breakthrough.


EOS Energy Storage is the smallest SPAC by market value we’ve reviewed, but its zinc-based battery technology aims directly at the supremacy of the dominant lithium-ion battery. But EOS is focused on the fast-growing stationary energy storage market for homes and utilities, not EVs. The company spent over $160 million in the last 12 years developing a 4-6 hour zinc battery that could be an ideal mechanism to shift energy produced from intermittent energy sources like solar and wind to meet periods of high consumer demand. In contrast to lithium-ion, the company’s batteries are fully recyclable, non-flammable, and non-toxic. EOS has inked several partnerships with large utility-scale solar and wind projects and has a deep pipeline of 1.5 GWh of renewable, utility, and commercial industrial storage clients.


Fuel cell truck company Nikola Motors has become a cautionary tale for SPACs. CAPM 2.0 reported on the striking announcements they had made when they went public via a merger with VectoIQ in June. But allegations made in an extensive report by hedge fund Hindenburg Research reveals that ex-CEO and Founder Trevor Milton may have made numerous false statements about the state of its technology. Nikola even went so far as to demonstrate that they had a working hydrogen-powered truck in a staged video that actually showed a dummy truck simply rolling down a hill. Last week Nikola’s prized automotive partner GM backed out of a deal to invest $2 billion in the company. NKLA’s share price, which had been as high as $80/share, fell to nearly $18 after the announcement. But the fact that Nikola still has an $8 billion market cap after swapping out their scandal-ridden CEO is a testament to the optimism the market has in companies addressing the coming hydrogen market and the booming cleantech industry as a whole.

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