Pivotal Investment Corporation II (NYSE: PIC) shocked the investing world on Friday after announcing their merger with EV technology provider XL Fleet. Investors immediately bought shares in PIC to secure their position before the news spread. However, the question on everyone’s mind, is did Friday’s investors and hedge funds jump the gun? Thus, today’s article will breakdown the merger and what investors must know before investing in PIC.
Table of contents 1. Key elements of the merger 2. What investors must know before investing
Overview of the PIC XL Fleet merger
XL Fleet, a provider of electric vehicle technology, is going public through the SPAC PIC. The reverse merger holds an astronomical valuation of $1 billion. However, considering XL Fleet is in the EV business, a high valuation is not a surprise. XL Fleet will receive $350 million from the $1 billion to expand internationally and service outstanding debt. PIPE investors will receive $150 million in common stock for $10.00 a share.
Importance of PIPE investors
It is important to note that PIPE investors are already up 21% on their investment, as PIC currently trades at $12.10. Investors should track the ROI of PIPE investors to understand when PIC could becoming overvalued. For example, if PIC rockets to $20 when the merger is complete, it might be time to de-risk your investment. (Opinion not advice) Because PIPE investors would be at an impressive 100% gain. XL Fleet would need a significant amount of retail investors to believe the EV story for the stock to gap up a lot.
XL Fleet and PIC do not have a concrete date for the merger. However, the merger is expected to close in the fourth quarter of this year. Once XL Fleet and PIC sign the paperwork, PIC will trade under the name XL on the NYSE.
Here is what you must know about the PIC XL Fleet merger before investing
Before I begin I am obliged to remind our viewers that this is not advice but rather investment commentary from extensive research
It is essential investors understand the potential SPAC bubble and whether XL Fleet is hype or making strides.
Is XL Fleet’s progress noteworthy?
XL Fleet is not an EV producer. Instead, XL supplies electrified powertrain solutions to EV producers such as Ford, Chevrolet, GMC, and Isuzu.
Most companies entering through a SPAC are often pure speculation. Take Fisker or Nikola, for example. However, XL Fleet is not speculating as they already have thousands their units on the road. XL’s units are not fresh on the road either as they have over 130 miles driven by more than 200 reputable customers. Coca Cola, FedEx, Pepsi Co are a few of the big names in XL’s customer base.
To add the cherry on top, XL Fleet is projecting strong financial growth for 2021. For example, XL forecasts 2021 revenue to be $75 million, which is 3x 2020s revenue. Overall, XL Fleet’s growth leans more towards the noteworthy side than hype.
The possible SPAC bubble
SPACs are growing in popularity amongst start-ups, institutional, and retail investors. Initially, SPACs seem like the golden ticket to an Eldorado of riches. Mainly because investors think of SPACs and Nikola or Draftkings come to mind. Consequently, investors are betting on SPACs to pay-off, similar to that of a lottery ticket.
However, the major drawback is only a few SPACs are entering the limo, while the rest sit on the gutter. The low success rate is causing the bears to short SPACs whether they have a merger or not. Considering PIC has a merger on the table, there is a chance of entering the limo. (opinion not advice) However, PIC investors are not immune to the growing SPAC bubble. Because the bears could still short XL Fleet’s growth.
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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick McLoughlin, Senior Manager of YIG.