First glance: the SPAC agreement that will make the start-up Lordstown Motors public

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Electric pickup start-up Lordstown Motors goes public: The Ohio-based company said today it has agreed to a merger with DiamondPeak Holdings (NASDAQ: DPHC), a special purpose acquisition company (or SPAC), as part of an agreement that will provide it with the necessary funds to put its electric van into production.

Lordstown, who owns a former General Motors (NYSE: GM) and counts GM among its investors, plans to put its Endurance pickup into production by the end of 2021.

Here’s what we know about the deal.

Steve Burns, CEO of Lordstown Motors, shown with the company’s Endurance electric pickup truck at his factory in Lordstown, Ohio. Image source: Lordstown Motors.

About the deal that will make Lordstown Motors public

If you followed the agreement that required electric-semi starting Nikola (NASDAQ: NKLA) public at the beginning of June, the main lines of the agreement with Lordstown will seem familiar.

  • Lordstown will merge with DiamondPeak.
  • The amalgamated company will be called “Lordstown Motors” and the former DiamondPeak stock will trade under the new symbol “RIDE”.
  • The transaction includes a $ 500 million PIPE (for “private investment in public shares”), fully funded by investors such as General Motors, Fidelity Investments, Wellington Management and accounts managed by Black rock.
  • GM’s $ 75 million investment includes “in-kind contributions” that have already been made.
  • Lordstown will receive around $ 675 million in gross revenue, enough to put Endurance into production.
  • The pro forma equity value of the combined company is approximately $ 1.6 billion.

The transaction is expected to close by the end of the fourth quarter.

Who is Lordstown Motors?

Readers may recall that Lordstown Motors is the company that took over the old GM plant in Lordstown, Ohio.

At its peak, GM’s Lordstown plant employed around 10,000 workers. But GM left the plant idle in 2019 amid declining demand for its product, the compact Chevrolet Cruze sedan – a move that has led to strong expressions of concern from President Trump and has was a factor in the United Auto Workers’ strike against GM later. year.

GM solved the problem by selling the plant to Lordstown Motors cheaply and offering help to the new company as it worked to prepare its electric pickup for production. This factory gives Lordstown a noticeable advantage over its competitors, including Nikola, who has an electric pickup prototype, but as of yet, no place to build it.

Endurance, unveiled in June, has already aroused the interest of commercial fleet operators. Lordstown said it has more than 27,000 pre-orders for the truck, representing more than $ 1.4 billion in potential revenue.

Lordstown is led by Steve Burns, the former CEO of the electric delivery van maker Groupe Workhorse (NASDAQ: WKHS).

How Workhorse fits into this offer

Workhorse didn’t just give Lordstown its CEO. It also licensed the company for some of its designs and technologies. In exchange, Workhorse received a 10% stake in Lordstown, along with an agreement that protects that stake from dilution for two years. Workhorse is also entitled to a 1% fee on all debt and shares raised to fund Lordstown during this two year period.

Put simply, while Workhorse is not named as an investor in the DiamondPeak deal, it will benefit: its 10% stake will be worth around $ 160 million at the $ 1.6 billion pro forma valuation of post-merger society, and possibly much more. Lordstown goes into production next year.

Who is DiamondPeak Holdings?

We don’t know much about DiamondPeak yet. We know this is a SPAC formed by the energy investment group of Silverpeak Capital, a New York-based private equity firm; and David Hamamoto, a serial entrepreneur with a long history of investing in real estate and healthcare companies.

Hamamoto is the CEO of DiamondPeak; he will join the board of directors of the merged company. In a statement released on Monday, Hamamoto said DiamondPeak had valued “hundreds of companies” over the past year before settling on Lordstown Motors.

The former GM plant in Lordstown, Ohio, seen from the sky.

Lordstown Motors’ plant, a former GM plant, gives it a significant head start in the production of Endurance. Image source: Lordstown Motors.

What should investors think about this?

I think that while starting any vehicle is a risky investment, Lordstown is a business-like company with a promising product. The Endurance is a rugged four-wheel drive pickup with innovative features including a full engine block at each wheel. This should simplify manufacturing, reduce costs and reduce maintenance, which is important to fleet customers.

What is the company worth? It’s hard to say at this time, but we’ll have more financial details once DiamondPeak issues the proxy asking its shareholders to vote for the merger later this year.

In the meantime, if you’re one of the many auto investors watching the electric vehicle startup space with interest, this is a credible effort that deserves a place on your watch list. Stay tuned.



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