Hennessy Capital Acquisition Corp. IV

HCAC Details

Merger with Canoo Holdings Ltd: Hennessy Capital Acquisition Corp. IV (NYSE: HCAC) is a special purpose acquisition company that focuses on technology, industrial and infrastructure sectors. On 18 August 2020, the company announced it has entered into a definitive agreement with Canoo Holdings Ltd, an electric vehicle company, for a merger that would create a new single entity which will be listed in Nasdaq under the ticker "CNOO". The combined business entity has a Pro forma enterprise value of ~$1.84 billion, implying a 0.79x EV / 2025E revenue multiple. After completing the transaction, existing Canoo shareholders will own ~71.5% of the pro forma equity. On 27 August 2020, the company released an update that stockholders approved an extension of the date to complete a business combination from 5 September 2020 to 31 December 2020.   

Canoo Outlook: Canoo Holdings Ltd. has developed a breakthrough EV platform – “skateboard” which facilitates rapid development of multiple vehicle programs. After completing the business combination, Canoo Holdings Ltd is expected to be the only EV player to integrate true steer-by-wire technology. In FY21, Canoo is expecting to generate revenues from subscription segment and engineering & B2B segment around $120 million, representing a YoY growth rate of 258%. Canoo will receive ~$607 million of cash proceeds from the transaction and it will use these proceeds to fund its commercial development and growth plans.

Financial Projections of Canoo Holdings Ltd (Source: Company Reports)

Key Risks: The company is exposed to several risks and uncertainties, including changes in domestic and foreign business, market, financial, political conditions. It is also to be noted that the expected benefits of the proposed business combination is exposed to the risks related to the roll out of Canoo’s business and the timing of expected business milestone and commercial launch. Being launched in the year 2018, Canoo currently has a very limited operating history.

Stock Recommendation: The stock of HCAC gave a return of 10.48% in the past six months and a return of 2.94% in the past one month. In only two year of its launch, Canoo has achieved several key milestones including competition of Beta Development, establishing strong relationships with global strategics, developing own proprietary technology.  Considering the aforesaid facts, expected benefits from the potential merger with Canoo Holdings Ltd, and risk-reward profile, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $11.17, down by 1.15% on 29 September 2020.  

HCAC Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Switchback Energy Acquisition Corporation

SBE Details

Switchback Agreed for a Merger with ChargePoint: Switchback Energy Acquisition Corporation (NYSE: SBE) is a special purpose acquisition company that focuses on Capital stock exchange, merger, stock purchase, asset acquisition, reorganization or similar business combination with one or more businesses in the energy value chain. On 24 September 2020, the company announced the signing of a definitive business combination agreement with a leading electric vehicle company - ChargePoint, Inc. Under the transaction, ChargePoint will receive $683 million in cash, resulting in a total pro forma equity value of approximately $3.0 billion. These proceeds will be used to repay debt, fund operations, support growth and for general corporate purposes. Following the transaction, the combined company will be listed on NYSE under the name - ChargePoint Holdings, Inc.

Outlook:  In the next five years, ChargePoint expects its revenue to grow at a CAGR of ~60%. Further, the company expects significant improvement in gross profit as well as adjusted EBITDA, as demonstrated in the below image.

June 2020 Quarter Results: During the June 2020 quarter, Switchback Energy Acquisition Corporation spent $176.8k on general and administrative expenses and incurred a franchise tax expense of $50k. For the quarter, the company incurred a net loss of $124.17k. At the end of June quarter, the company had total cash of $42.46k and total assets of $317.72 million.

June Quarter Statements of Operations (Source: Company Reports)

Stock recommendation: The stock of SBE gave a return of 74.35% in the past six months and return of 61.21% in the last one month. The stock is currently trading near to its 52-weeks high level. On a technical front, the stock of SBE has a support level of ~$14.12 and a resistance level of ~$17.84. Considering the sharp increase in the stock price over the last month and the current trading levels, we suggest investors to wait for better entry levels. Hence, we suggest investors to avoid the stock at the closing price of $15.21, down by 2.06% on 29 September 2020.

SBE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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