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Israeli Startup REE Plans Merger With 10X Capital SPAC

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  • Blank-check deal values combined entity at about $3.1 billion
  • REE investors set to own more than 80% of the combined company

REE Automotive, an electric-vehicle technology startup, has agreed to go public through a merger with 10X Capital Venture Acquisition Corp., a blank-check company, according to people with knowledge of the matter.

A transaction, which features a $300 million private investment in public equity, or PIPE, is set to give the combined entity an enterprise value of about $3.1 billion, said the people. REE’s existing investors will own more than 80% of the combined company, and a deal could be announced as soon as Wednesday, they said.

A REE representative declined to comment and a 10X spokesperson didn’t immediately respond to a request for comment

REE, a Tel Aviv-based company led by co-founder and Chief Executive Officer Daniel Barel, makes technology including REEcorner, which integrates all drive components into the arch of the wheel, and REEboard, a flat, modular chassis that can be used as a platform for autonomous delivery vehicles, trucks, shuttles and robo taxis. The company has said its platform can be used for battery-powered or fuel-cell vehicles.

In August, REE signed a memorandum of understanding with Mahindra & Mahindra Ltd., an India-based manufacturer, to develop and produce as many as 250,000 electric vehicles initially. In November, it inked a partnership with Iochpe-Maxion SA to manufacture and develop a wheel design and chassis technology. REE also has partnerships with Mitsubishi Corp., American Axle & Manufacturing Holdings Inc., KYB Corp., Musashi Seimitsu Industry Co. and NSK Ltd.

REE expects to have 16 assembly plants in hubs such as the U.S., Germany and Japan by 2026, with annual capacity of about 600,000 units, a person familiar with the matter said. It hopes to begin mass production next year, and has signed MOUs for orders worth $5.1 billion through 2026.

The 10X Capital SPAC, affiliated with the New York-based investment firm of the same name, is led by Chairman and CEO Hans Thomas. In November, it raised a little over $200 million in an initial public offering, saying at the time that it would focus on finding high-growth technology and tech-enabled businesses in the U.S. and abroad. PIPE investors supporting the transaction include Koch Strategic Platforms, Mahindra & Mahindra and Magna International Inc.

A flood of electric-vehicle and related companies have agreed to go public through SPACs, including Arrival Ltd., Lion Electric, EVgo Services LLC, Faraday Future, Lightning EMotors and Microvast.

Source: Bloomberg – Israeli Startup REE Plans Merger With 10X Capital SPAC

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SPACS

Public Benefit Corporations and the SPAC Surge

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In Mintz’s recent article—“Public Benefit Corporations are Going Public,”—we predicted that, as Special Purpose Acquisition Companies (“SPACs”) reemerge as an alternative to initial public offerings (“IPOs”), Public Benefit Corporations (“PBCs”) would start going public through the SPAC process. Not surprisingly, two PBCs have recently done just that, and it seems certain that more PBCs will follow. It is important to note, however, that regulators like the U.S. Securities and Exchange Commission (the “SEC”) are increasingly focused on SPAC oversight, which may slow the frequency of SPAC transactions as regulators issue new guidance and enforcement measures.

As described in Mintz’s previous articles—“Can I Raise Venture Capital as a PBC?” and “What are My Exit Options as a PBC?”—a PBC is a legal corporate form created by the state of Delaware in 2013 that, among other things, codifies a company’s social mission.[1] A PBC allows a board of directors to make business decisions based not just on the economic interest of the corporation’s shareholders (as required by the traditional C-Corporation corporate form), but based also on the PBC’s mission, which may focus on the interests of those materially affected by the corporation’s conduct, including employees, customers, communities and the environment. PBCs are gaining mainstream acceptance as societies and markets increasingly insist that corporations generate positive social impact alongside profits.

Parallel to the rise of mission-driven PBCs is the renewed popularity of SPACs, which have dominated the markets over the past two years as an alternative IPO-strategy for many companies interested in accessing capital. Mintz’s comprehensive report produced in collaboration with PitchBook, Breaking Down the SPAC Surge: A Review of Key Trends & Issues Defining the Phenomenon (the “Mintz SPAC Report”), highlights this trend. For example, in 2020, nearly $125 billion was raised across hundreds of SPACs with 123 SPAC mergers announced or closed for an aggregate of $59.3 billion.

The process of going public through a SPAC transaction can be faster, but is no less complex, than a traditional IPO. This is how the process works:

  • First, founding investors (“Sponsors”) form and manage a shell company with no commercial operations formed to raise capital through an IPO (a “SPAC Entity”). The purpose of the SPAC Entity is to acquire or merge with an existing operating company (a “Target”) which allows the Target to become a public company. Sponsors purchase founder shares of the SPAC Entity for a nominal amount, which results in an approximately 20% equity ownership stake after the IPO.
  • Second, the SPAC Entity raises capital through an IPO by issuing units comprised of common shares and warrants to investors, with proceeds held in a trust until the Target is acquired or the SPAC expires. After these two steps, the resulting public entity is a holding company with a pool of funds held in trust to finance the acquisition of one or more Targets.
  • Third, after the SPAC IPO process, a SPAC Entity undergoes a “de-SPAC transaction.” Similar to a traditional M&A process, Sponsors vet potential Targets, and once a Target is identified, closing conditions often require a simultaneous private investment in public equity, traditionally known as a PIPE, to close the merger.
  • Fourth, the Sponsors and shareholders of the SPAC Entity vote in favor of a transaction.
  • Fifth and finally, the Target and the SPAC Entity merge and complete the business combination. The final three steps demonstrate that the merger transaction between the publicly traded SPAC Entity and the private company is a de-SPAC transaction, which results in (1) the shareholders of the private company receiving shares of the SPAC Entity and/or cash as consideration and (2) the private company becoming a publicly traded entity.

PBCs have begun to fill the demand for mission-driven companies in the public markets by engaging in SPAC IPOs and de-SPAC transactions. For example, according to ImpactAlpha, as of mid-March 2021, 31% of outstanding SPACs (based on deal value) pursue business strategies that are aligned either partially or entirely with sustainable investing strategies that include (1) social and environmental themes; (2) the achievement of impact; and (3) the integration of environmental, social, and corporate governance (“ESG”). Professor Christopher Marquis, the Samuel C. Johnson Professor in Sustainable Global Enterprise at Cornell University, discusses the link between SPACs and sustainability in his April 1, 2021 Forbes article, “New SPAC Sees Growing Market Opportunities For Stakeholder-Minded Businesses and Investors,” where he contends that the processes of both a SPAC IPO and a de-SPAC transaction can complement a PBC’s impact objectives:

Demand for ESG and impact in public markets is rising in several ways. Public equity impact strategies experienced one of the most significant growth rates across all asset classes from 2014 to 2018, and sustainability-focused funds saw record inflows in the first quarter of 2020, particularly to mitigate risks amid the Covid-19 pandemic . . . But the availability of ESG-focused companies addressing global challenges are not increasing to match this demand.

AppHarvest Inc. (“AppHarvest”), a PBC, engaged in a de-SPAC transaction by going public through a merger with a public SPAC Entity, Novus Capital Corp., on February 1, 2021, making AppHarvest the first PBC to engage in a de-SPAC transaction. AppHarvest is an agriculture technology company focused on building and operating “high-tech indoor farms to sustainably grow affordable, nutritious, chemical pesticide-free non-GMO fruits and vegetables at scale using 90% less water than traditional open-field agriculture and 100% recycled rainwater.” After AppHarvest and Novus Capital Corp. completed their merger in February 2021, the combined entity was renamed AppHarvest and now trades on Nasdaq Global Select Market. As a result of the transaction, AppHarvest received approximately $475 million of gross proceeds and over $435 million of unrestricted cash to fund operations. Since the completion of the merger in February 2021, AppHarvest’s trading price was as high as $38.21 and as low as $12.61 as of the publication of this article. On April 19, 2021, shares of AppHarvest entered into oversold territory, hitting an RSI reading of 28.3.

In addition, Sustainable Development Acquisition I Corp. (“SDAC”) formed as a SPAC Entity to acquire or merge businesses addressing global challenges identified by the United Nations Sustainable Development Goals, including businesses in the water, food, agriculture, renewable energy, and environmental resource management industries, and went public through a SPAC IPO on February 9, 2021, becoming the first PBC SPAC Entity. The Sponsors of SDAC, Renewable Resources Group and Capricorn Investment Group, each of which has dedicated their expertise and resources to investing in “market opportunities to create financial value, generate environmental and social benefits, address environmental, labor, or natural resource challenges,” raised approximately $316 million at the closing of SDAC’s upsized initial public offering of 31,625,000 units at a price of $10.00 per unit. SDAC is currently searching for Targets to merge with and to begin a de-SPAC transaction. SDAC’s units are currently traded on the Nasdaq Capital Market. Since February, SDAC’s unit price had a high of $11.45 and a low of $9.74, and closed at $10.12 as of the publication of this article.

As more PBCs go public either through SPAC IPOs like SDAC or de-SPAC transactions like AppHarvest, they should carefully address related risks. For example, a PBC going public through a SPAC will have to carefully and clearly draft its public filings with the SEC to describe not only the opportunities afforded to the PBC corporate form, but also the associated risk factors of the PBC, such as potential shareholder derivative litigation to enforce the PBC’s social mission. In addition, as Tom Burton, Mintz Member and Chair of the Energy & Sustainability Practice, discussed in “SPAC Chat Episode 3: Tracking Trends of the SPAC Surge” on the From the Edge: Insights on the Innovation Economy podcast, “the SEC has indicated that they are taking a look at this marketplace and trying to determine whether there ought to be any additional disclosure requirements.”

Not surprisingly, the SEC stated on April 12, 2021 that it will begin to examine the accounting principles that SPACs have used to classify their warrants. SPACs have typically classified warrants issued to investors during the capital raising process as equity on the SPAC’s balance sheet. However, under certain circumstances, the SEC has stated that some warrants should be classified as liabilities, which would require the SPAC to periodically account for changes in the warrants’ value. One possible adverse impact the SEC’s announcement is that affected SPACs would have to restate their financial results if the fluctuations are material. As a result of the SEC’s statement, the Wall Street Journal cautioned that the frequency of SPAC transactions has begun to decrease because “[c]ritical comments from regulators appear to be scaring off some investors and new offerings” in the April 16, 2021 article, “SPAC Hot Streak Put on Ice by Regulatory Warnings.”

While there may be challenges and risks associated with SPAC transactions and evolving regulatory oversight, there are also exciting opportunities for PBCs that go public through SPACs. For example, SPACs allow companies to go public without as much public scrutiny as a traditional IPOs, while also enabling PBCs to more quickly access capital for operations or expansion. In addition, a PBC that goes public through a SPAC can quickly reach a wide range of new investors and capital, as public investors are eager to support companies making a positive social and environmental impacts. Further, the PBC could see increased publicity for and awareness of their larger social mission. In this complex and exciting marketplace, however, mission-driven leaders hoping to go public through a SPAC transaction or through the traditional IPO process should seek out experienced counsel and legal advice.

[1] In addition to Delaware, 35 states and the District of Columbia have passed legislation allowing the formation of PBCs. See https://benefitcorp.net/policymakers/state-by-state-status.

Source: The National Review – Public Benefit Corporations and the SPAC Surge

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SPAC GigCapital3 gains as holder vote for Lightning eMotors was earlier today

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SPAC GigCapital(NYSE:GIK) advanced 17% as the shareholder vote for the company’s merger with electric vehicle company Lightning eMotors took place earlier today.

GigCapital3 didn’t immediately respond to Seeking Alpha request for comment on the results of the vote.

GigCapital dropped 23% over the previous 3 days as the stock began to trade ex-redemption. 

Electric vehicle stocks across the board were up today after a couple of softer sessions with stocks such as Arrival (NASDAQ:ARVL), Fisker (NYSE:FSR) and Greenpower Motor (NASDAQ:GP) all climbing.

Of special interest to the EV world, U.S. Special Presidential Envoy for Climate John Kerry says Chinese President Xi Jinping is set to make an announcement on how China will address emissions during his appearance at President Biden’s climate summit.

Source: Seeking Alpha – SPAC GigCapital3 gained as holder vote for Lightning eMotors was earlier today

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SPAC Boom Dries Up as SEC Warning Curtails Year’s Hottest Trend

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  • Hundreds of SPACs affected by SEC warrant accounting guidance
  • Too soon to tell if all will require restatements

An SEC warning about SPAC accounting errors has not only chilled the red-hot market but triggered the first of what could be a flood of financial restatements by the popular blank-check companies.

Northern Genesis Acquisition Corp., a special purpose acquisition company that plans to take a Canadian electric bus maker public, announced Tuesday that it would have to redo its last annual financial statement to comply with a major accounting shift forced by Wall Street’s top regulator.

The Kansas City-based SPAC could be the first of many blank-check companies forced to go through the onerous process of restating past earnings because of the Securities and Exchange Commission’s announcement about SPACs improperly accounting for key money-raising tools. The company didn’t respond to a request for comment.

The SEC rocked the SPAC market when it announced April 12 that SPACs needed to account for certain warrants as liabilities, not equity. The announcement halted initial public offerings and forced SPACs, the companies they have taken public, and armies of accountants and lawyers to sift through deal terms to determine if their accounting errors were significant enough to require the companies to issue restatements.

“It’s created a huge mess,” said Kristi Marvin, founder of SPACInsider, a research firm that tracks the deals. “It’s just a lot of paperwork everyone’s going to have to get through.”

The SEC called out accounting for warrants—incentives that allow investors to buy shares at a set price in the future and are a near universal feature of blank-check company deals. Depending on complex accounting rules that can trip up even the most seasoned accountants, warrants may be classified as either liabilities or equity on company balance sheets.

Prior to the April 12 announcement, most SPACs classified the warrants as equity. Under accounting rules outlined in ASC 815, liabilities must be recorded at fair value, a measurement technique that can make companies record swings in their earnings. The underlying economics and the company’s cash flows don’t change, but it’s a lot of work to tweak the accounting and determine knock-on effects. Hundreds of companies are affected, Marvin said.

“It’s had a significant effect on the market, and that’s because no one really knows what to do,” she said.

‘Chilling Effect’

The SEC’s guidance landed like a thud. Law firm Davis Polk & Wardwell LLP in a note to clients last week said no other SEC proclamation had such a “significant chilling effect” on capital markets activities.

That may have been the point. SPACs surged in popularity in 2020 in part because the way they take a company public avoids the paperwork and regulator scrutiny of a traditional IPO. The founders of the bare-bones shell companies raise money, go public, and then target a promising business to acquire, usually within two years. That business gets a shortcut to a public listing by merging with the SPAC.

Electric carmaker Nikola Corp. and online sports betting company DraftKings Inc. went public in 2020 through mergers with already public blank-check companies. Space tourism company Virgin Galactic Holdings Inc. went public via SPAC the year before.

A record 248 SPACs went public in 2020, and more than 300 have done so already in 2021, according to SPACInsider.

But the SPAC boom also spurred regulator scrutiny. The SEC in early April warned that companies that go public via SPAC need to have robust internal controls and enough financial reporting experience to get accounting right, the agency’s acting chief accountant said. A few days later, another top SEC official said SPACs don’t get a free pass on federal securities laws.

Then came the abrupt April 12 accounting announcement.

“The SEC was signaling, ‘You guys need to slow down for a while,’” said Julie Copeland, partner at StoneTurn Group LLP, a global advisory firm.

‘Burning the Midnight Oil’

And slow down they did. While some merger deals already in the works continued, SPACs themselves paused their initial public offerings as they sorted through the accounting guidance, SPACInsider data shows.

Some blank-check companies, like Provident Acquisition Corp. and Clarim Acquisition Corp., said in securities filings they were assessing how significant their accounting errors were, signaling a possibility of restatements.

Other companies that went through SPAC mergers like fast-food chain Burger Fi International Inc. and drugmaker 180 Life Sciences Corp. told regulators they would have to delay filing required financial statements as they digested the SEC’s guidance.

But it’s too early to tell if every accounting adjustment will require SPACs and the companies they have taken public to restate past financial statements, said Michael Poveda, partner at accounting firm UHY LLP.

The assessment hinges on whether the accounting shift will result in a material change to a company’s financial information. That will vary for every SPAC and also for the companies that went public via SPAC merger, Poveda said.

“It’s not a one-size-fits-all analysis,” Poveda said. “That analysis is going to be one that requires a lot of consultation.”

Some companies that went public via SPAC merger also were able to change their accounting under the wire to avoid an onerous restatement. Laser sensor startup Luminar Technologies Inc. said in its latest securities filing that it classified those warrants as liabilities, after saying April 1 that it needed more time to submit its annual 10K filing because it was wrestling with accounting for warrants.

The same went for battery technology company Romeo Power Inc. The company in late March said it needed an extension to file its 10K because of warrants woes but by April 15, its 10K had classified warrants in accordance with the SEC’s wishes.

Accountants, lawyers, and valuation specialists meanwhile are working behind the scenes to plot next moves, Poveda said.

“We’re spending a lot of time burning the midnight oil, staying on top of it and working with not only our clients, but everyone in the ecosystem to help make sure we get to the right place,” Poveda said.

Source: Bloomberg Tax – SPAC Boom Dries Up as SEC Warning Curtails Year’s Hottest Trend

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SPAC Mudrick Acquisition II gains after Topps began selling NFT baseball cards

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Why VCs Are Investing In NFT Marketplaces https://news.crunchbase.com/news/why-vcs-are-investing-in-nft-marketplaces/?utm_source=twitter&utm_medium=website&utm_campaign=SocialSnap via @crunchbasenews #VentureCapital #VC #SPACs #invest #blockchain #NFTs #NFTCommunity #nftcollector

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