Northern Genesis Acquisition Corp (NYSE: NGA) announced on November 30 that they have entered an agreement to merge with EV manufacturer Lion Electric. The merger adds to the vastly growing list of EV innovators jumping on board the SPAC train to raise much needed capital. The NGA merger is close to completion with the shareholder meeting on the 23rd April 2021. Assuming shareholders approve the transaction, Lion Electric could be trading as early as next week. This article will breakdown everything you need to know as we move closer to the Northern Genesis & The Lion Electric Merger deal.
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Key details of the Northern Genesis/ Lion Electric merger
The merger will see both companies combine under one trading name, NYSE:LEV. The transaction includes a $200 million private placement of shares from PIPE investors. The merger itself is expected to net Lion Electric $500 million in Cash to inject into their expansion strategy. In particular, the proceeds will go towards planned construction of a “state-of-the-art” US based vehicle manufacturing facility. Furthermore, the company will also focus on the development of advanced battery systems and the construction of a high tech automated battery system assembly factory.
- The pro forma implied market capitalization of the merged company is $1.9 billion USD.
- Lion Electric’s existing shareholders will hold 70% of the combined company’s common equity after the merger is completed.
- The merger will concrete Lion’s positioning as a leading medium-large all-electric vehicle manufacturer according to Northern Genesis.
- Shareholders will need to approve of the merger and all regulatory requirements can be met.
Whats the outlook for Northern Genesis stock pre-merger?
I am obliged to remind our viewers that this article is not financial advice but rather investment commentary from extensive research.
Firstly, it’s important to ensure investors understand how a SPAC works and operates on Wallstreet. A SPAC or a Special Purpose Acquisition Company will look to find high growth companies to take public and raise capital, whilst doing majority of the background work. For example, a recent trend we have see this year is SPAC’s taking high growth EV companies public (eg. Hyliion, Fisker, Lordstown Motors and Nikola).
The common theme amongst these companies saw investors jump on board as the merger edged closer to its expiration date. This can generate a bubble that is susceptible to pop once the company lists publicly and the high demand/volume tires. Therefore, its important to understand how to evaluate a company pre and post merger, inclusive of the effects of the SPAC transaction and PIPE investors on the stock price.
Bullish outlook on Lion Electric moving into 2021 and beyond
The Lion Electric is a leading all-electric medium and heavy-duty urban vehicle manufacturer based in Canada. The company currently has 300 vehicles on the road with over 6 million miles driven collectively. In addition, Lion expects to increase this number to 650 by 2021. Furthermore, Lion has also stated they have 6,000 potential vehicle sales in the pipeline over the next 3 years of operating. Revenue forecasts for 2021 suggest an increase of 608% year-over-year to $204 million. Lion Electric expects this to grow to $1.67 Billion in 2023 and $3.6 Billion in 2024. It is worth noting, truck deliveries will be the main contributor to revenue growth in comparison to bus deliveries according to Lion Electrics forecasts.
Secondly, the upside is the company already has vehicles on the road, which is already 2 steps ahead of half of the EV industry. As demand heats up over the longer term, a US Government contract for school buses would offer security for Lion. Evidently, the company has mentioned the Biden Clean Energy Plan, which notes for 500,000 school buses to run on zero emissions by 2030. This will be something that long term shareholders will have their eye on.
“Lion surpasses our expectations on all these dimensions and we are confident that it has potential to be a great public company in the emerging decarbonized economy.”said Ian Robertson, co-founder of Northern Genesis.
Whats the risk associated with the Northern Genesis/Lion merger?
The US and Chinese EV industry on Wallstreet is growing at a rapid pace. Many companies have entered the market through a Shell company or SPAC this year. So where does this leave investors?
The EV industry is becoming more and more competitive, which will force companies to drive growth at full speed. Furthermore, the demand for these vehicles has been solidified by Government intervention for a longer term transition. However, the short term demand may hurt investors in the EV industry. For Lion, EV buses is a great differential however it will directly compete with its UK counter part Arrival.
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.
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