Investor interest in special purpose acquisition companies in the hydrogen vehicle arena has been “SPAC”tacular in recent months, making it a trend that is likely to stick around for the foreseeable future. But that doesn’t necessarily mean it is a good bet for investors, particularly retail investors.
From makers of flying cars to companies that produce various components of hydrogen fuel cell-driven electricity, hedge fund investments in SPACs over the past year have led to a flood of hydrogen and electronic vehicle (EV) related companies finding their way to the public markets through what are essentially back door IPOs.
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And with many of these SPACs having seen their prices soar after making it to market, it has only fuelled additional interest in these investment vehicles as investors seek to get a piece of what they hope will be the next Tesla Inc. (Nasdaq: TSLA).
Interest in using SPACs is unlikely to wane
On the company side, interest in using SPACs is unlikely to wane, given that it is a cheaper and quicker route for companies to go public. But, following a warning from the Securities and Exchange Commission that it will be paying greater attention to these investment vehicles and reclassifying the SPAC warrants (what are essentially options that give investors the ability to buy a set number of shares at a pre-determined price) from equity to liabilities, SPAC activity has experienced a major decline in the US.
In 2020, 248 companies went public through SPACs and the trend showed no signs of slowing down at the start of this year, with close to 300 SPAC mergers filed in just the first quarter of 2021 and 116 companies successfully using SPACs to go public in January alone.
Though there has long been talk of a SPAC bubble that would inevitably pop, that has yet to tamp interest in hydrogen SPACs on the retail investor side. Now, however, while the proverbial bubble may not yet have popped, there are signs that SPAC activity may be slowing a bit.
Following the SEC’s revelation of its enhanced scrutiny, SPAC activity plummeted in April. It remains unclear whether the trend has already played out, particularly given the larger number of closely watched deals that have already been announced, such as hydrogen mobility company Hyzon Motors Inc., which is expected to complete its merger with Decarbonization Plus Acquisition Corp., a Nasdaq-listed SPAC, in the near future. And Hyzon is far from alone, with other upcoming deals including EV charging station network creator Volta, which is planning a SPAC merger with Tortoise Acquisition II and EV charging company EVgo’s planned SPAC merger with Climate Change Crisis Real Impact I Acquisition Corporation, among others.
Global focus on climate change is driving hydrogen SPAC appetite
One of the major drivers behind interest in hydrogen SPACs is the global focus on climate change — an issue that is expected to become more and more pressing moving forward.
“I think the current level of activity for SPAC in hydrogen/EV will be sustainable over the long term because a couple of players in each category will emerge as category leaders and start merging or acquiring the weaker players to accelerate growth and gain the critical mass needed to support widespread adoption,” said Matt Villarreal, CEO of Infinite Composites Technologies, which produces products for the aerospace, aviation, defense, bulk gas transport and vehicular transportation market. “Since the industry is very reliant on hardware innovations and manufacturing, the companies have much longer lifecycles and time horizons vs software/SaaS companies. So, they are usually built to create long term high value opportunities, as opposed to short term, quick exits,” he said.
Added Nate Tsang, founder and CEO of stock research website Wall Street Zen: “There are plenty of unsuccessful SPACs, which gives EVs and hydrogen companies their winning record,” noting that the success of other SPACs in this industry has incentivized other companies to follow suit. “Is it all going to pay off? EV investment worldwide is a priority for governments and municipalities, and the technology of these companies isn’t as far-flung as some other tech SPACs out there,” he said.