Arrival/Spac: desperate companies need desperate financial engineering

Special purpose acquisition companies were devised to take groups public. Now they are needed to keep businesses alive.

Arrival listed via a US blank cheque company in 2021 at an enterprise valuation of $5.4bn. This endowed the UK electric vehicle start-up with nearly $700mn in cash. That financial bridge was intended to take the company to 2024 when it planned to hit $14bn in revenue and $3bn in gross profits.

Arrival, like the roll call of EV participants that rode the Spac wave, is nowhere near its targets. It has burnt through nearly all its cash.

Desperation met opportunity last week. Arrival announced it would merge with Kensington Capital Acquisition Corp V, another blank cheque company. Arrival may survive to commercialise its delivery van. But calamity has already engulfed its shareholders.

Private companies sought Spac partners for two purposes. First, to achieve a seamless public listing. Second, to access the pot of cash the Spac had raised in its initial public offering.

Kensington will bring nearly $300mn in cash to Arrival’s balance sheet. But it is not coming cheap.

Arrival’s price has fallen to less than 15 cents a share. It will use that battered currency to combine with Kensington, whose shares will be valued at $17 apiece. The $17 figure is remarkable: Kensington is not an operating business just a cash shell whose shares were sold at $10 each. As such, Arrival is not acquiring those shares at parity, but at a 70 per cent premium. 

Kensington’s shares are only trading at about $10.50, signalling investor scepticism about Arrival’s prospects. But the stock has not collapsed to less than $10 either. Kensington investors are set to own a whopping 70 per cent of Arrival, whose mooted enterprise value would be $524mn 

Spacs were meant to help high-growth companies get the capital to flourish on public exchanges. This deal shows they can also be used for bottom fishing — and that cash is an asset with greater sway than a painfully reworked business plan.