Birth Of A SPAC: Ex-GM Executive Hunting Next-gen Mobility Target

Former General Motors Company GM executive Barry Engle and his team at Qell Acquisition Corp. raised $380 million in less than a month to invest in a next-generation mobility company. Despite a record number of special purpose acquisition companies (SPACs) being formed this year, he still sees plenty of opportunity.

"The number of companies out there for whom this might be a really good alternative is infinitely larger," Engle told FreightWaves in an interview. "Very few companies looking for capital are not considering a SPAC. So there's a lot of companies out there to talk with."

Investors are eager. SPACInsider reports a record 143 SPACs — an alternative to a traditional initial public offering (IPO) — had been filed this year, with total proceeds of $55.1 billion. The average SPAC was worth $385.5 million. They account for almost half of the $11.6 billion raised in public offerings in 2020, according to data provider Refinitiv quoted by the Financial Times.

The number of special purpose acquisition companies in 2020 had more than doubled the number in 2019. (Source: SPACInsider)

"Look, taking a company public is a serious matter and a SPAC is not meant to be able to give a company that's not ready and not deserving access to public markets," Engle said. "Yes, it's a different way to do it. But at the end of the day, the company needs to be ready to be a public company. And if it's not, then that's a problem for everyone involved. 

"The onus is on the SPAC to do a lot of that diligence. So it's not that there's less diligence. It just happens in a different way. [We must] do our homework and make sure that this company is ready for prime time."

Founders of a feather

Until August, Engle was president of GM's $100 billion North American business unit. His team includes automotive experts like former supplier CEO and Ford Motor Co. executive Kathleen Ligocki and 15-year private equity veteran Sam Gabbita. 

All three worked at Agility Fuel Solutions Holdings, a manufacturer of clean energy storage, delivery and conversion systems for commercial vehicle makers and fleets. Hexagon Composites ASA purchased the 50% of Agility it did not already own in November 2018. 

Engle was CEO at Agility. He formerly led financially challenged European electric vehicle manufacturer Think EV. Engle joined GM in 2015. His roles included running GM's global Chevrolet brand before taking on GM North America in 2019.

The Qell Board of Directors displayed on the Nasdaq sign in New York City's Times Square. The special purpose acquisition company is seeking a next-gen mobility target to invest the $380 million raised in its initial public offering. (Photo: Qell)

Three-sleeve target selection plan

Qell's focus for a business combination is what Engle calls "next-gen mobility." Targets could include a passenger vehicle company, a commercial logistics or freight-tech company or a sustainable industrial technology, "which is kind of the plumbing and the guts that enable the other two."

"All three of those sleeves are really interrelated and interdependent," Engle said. "Clearly alternative fuels, which these days often are synonymous with electric, are very much in scope for us. This secular transition from internal combustion to electric is very real and gaining momentum every day."

Battery electric and fuel cell truck maker Nikola Corp. NKLA, hybrid electric driveline maker Hyliion Holdings Corp. HYLN and LiDAR maker Velodyne VLDR are just three companies that began public life following the SPAC path.

A host of others, including startup Lordstown Motors Corp. (LMC), are in the process that typically takes four to six months. A reverse merger vote by Diamond Peak Holdings Corp. DPHC shareholders on bringing LMC public is scheduled this Thursday.

The attraction of alternative-fuel trucking

Other than Nikola, SPACs generally have bypassed trucking. One exception: flatbed holding company Daeske Inc. DSKE. The roll-up of family-owned trucking companies went public in a reverse merger with Hennessy Capital Acquisition Corp. in February 2017.

"We believe some of the most interesting and early applications of these alternative fuels will be in the commercial space," Engle said. "These are customers who understand total cost of ownership very, very well. They track it meticulously and to the extent that you have technology that can save them money, then they will adopt."

The desire to clean up trucking because of corporate conviction and regulatory pressure is an additional motivator. Through its Advanced Clean Truck rule, California requires zero emissions on 9% of trucks sold in the state beginning in 2024. All internal combustion engine-powered trucks are targeted to be off Golden State roads by 2045.

"Many of these fleets have ESG (environmental, social and governance) considerations that they're managing, both of their own as well as that of their shippers and even their end users," Engle said. "So we see that as being an area that's right for the application of some of these alternative fuels."

Traditional automakers and tier-one suppliers with certain assets also are candidates, Engle said. For example, GM has expressed willingness to carve out its electrification business, which could unlock value unrealized in its market capitalization. 

"Could a SPAC be used to do it? Absolutely," Engle said. 

A compelling case for taking the bus

A compelling case can be made for Qell to consider merging with battery system technology developer Propterra Inc. Its co-founder and former CEO, Ryan Popple, is a Qell board member. 

Proterra is generating revenue and still raising capital. It recently closed on a $200 million infusion led by Cowen Sustainable Investment Advisors. Eight previous funding rounds gave Proterra a $1 billion valuation, according to TechCrunch.

Proterra works with Thomas Built Buses, a subsidiary of Daimler Trucks North America (DTNA), among other partners. Popple was succeeded in March by former Navistar International Corp. NAV Chief Operating Officer Jack Allen, Proterra's chairman since 2017.

In 2017, a Proterra bus set a world record of 1,100 miles on a single charge at Navistar's proving ground in New Carlisle, Indiana.  

"We know Proterra. We love Proterra," Engle said. "It's a great company. I think subjectively if you look at Proterra, it's a company that's operating right square in this area of electric vehicles. It is in fact a private company and companies like that would be a very good candidate for a SPAC."

Battery system technology developer Proterra is the kind of company Qell Acquisition Corp. would be interested in taking public in a reverse merger. Former Proterra CEO Ryan Popple is a Qell director. (Photo: Proterra)

Even if the stars align, the U.S. Securities and Exchange Commission prohibits SPACs from cutting advanced deals.

"We certainly didn't put together a SPAC with a single company in mind," Engle said.

Working the numbers

Qell set out to raise $300 million. It raised $380 million. The size of the SPAC multiplied by three to five suggests Qell would be looking for a company valued between $1.4 billion and $1.9 billion. But it can go higher. Once a target is identified, the SPAC can raise additional funds for its target by selling discounted shares through a private investment in public equity (PIPE). 

A SPAC typically has two years to identify a target. If time runs out, the IPO investors in the shell company get their money back. Qell operates with a sense of urgency.

"Teams get towards the end, they're in trouble," Engle said. "They need to get a deal done or they're going to lose their money. So they get sucked into doing a deal that in hindsight is maybe outside of their area of expertise. They end up paying more than they should have. And it ends up not being as good a deal for the shareholders as they might expect or like. 

"So having learned from that, we understand the importance of transacting sooner than later."

Seeking advice

To avoid some of the SPAC-crushing pitfalls, Engle tapped former GM Vice Chairman Steve Girsky for advice. Girsky led Nikola's reverse merger through his VectoIQ blank check company. He recently became chairman of Nikola's board after founder and Executive Chairman Trevor Milton left the company following fraud accusations in a report by a short seller.

"I have told Steve that I don't know that anyone has single-handedly done more to create SPAC opportunities for people like myself and others than he has," Engle said. "Steve has opened up a world of opportunity. He didn't invent the SPAC. I think what Steve did helped people see how these tools can be applied and certainly brought a lot of interest and attention."

For his part, Girsky sees a fertile field. But he is uncommitted to starting another SPAC.

"There's a lot going on in the smart transportation world," he told FreightWaves in April. "There's a lot of capital needed to make this happen."

Oh, about the Qell name

Board member Ligocki offered Qell following a weekend Scrabble game. The Urban Dictionary defines qell as an adjective meaning something amazing or fantastic. It is one of few English words in which the letter Q is not followed by the letter U. The traditional spelling of "quell" is defined as forcefully putting down a rebellion.

"For weeks we were trying to land on a name that we could use," Engle said. "And it didn't matter what we came up with. Somebody had already landed on it themselves or used it. Qell is one syllable. It's memorable. And certainly nobody else was using it."

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Click for more FreightWaves articles by Alan Adler.

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