Electric Vehicle Makers Find a Back Door to Wall Street

Steve Burns pulled together several pieces of a business venture over the last year: His company, Lordstown Motors, designed an electric pickup truck, acquired a plant and machinery from General Motors, and racked up thousands of orders.

Yet Mr. Burns was still struggling to raise enough capital. This month, he nailed down that critical piece by agreeing to merge Lordstown Motors with a special purpose acquisition company, or SPAC, a transaction that will net the truck maker $675 million and a listing on Nasdaq.

Another upside: Unlike a conventional initial public offering, a SPAC merger will take just a couple of months, Mr. Burns said. “The traditional I.P.O. time is maybe a year and a half,” he said. “We are in a race to be first with electric trucks. We wanted to get it done and get to the business of building the vehicle.”

SPACs are suddenly in the limelight.

These companies have long existed on the sidelines, providing small or distressed companies with capital and the ability to list their shares on a stock exchange — things they might not have access to otherwise. Sometimes called blank-check companies, SPACs raise money from investors without having a detailed business plan. Their sole purpose is to find another business to buy within two years. If that doesn’t happen, the company folds and investors get their money back.

Although industry watchers say SPAC frauds are rare, one SPAC’s purchase last year of Modern Media Acquisition, a music-streaming business whose books were later alleged to be fraudulent, gave some investors pause. And some aspects of the SPAC business model — namely, the fact that sponsors of these acquisition companies are frequently able to buy substantial stakes in the business they merge with at minimal cost — have raised questions about their benefit to typical shareholders.

In recent months, investors behind SPACs have become particularly enamored with electric vehicle businesses amid rising expectation that such cars and trucks will soon begin displacing vehicles powered by fossil fuels. Shares of Tesla, the world’s leading electric carmaker, have soared so much that its market capitalization is nearly twice as big as Toyota Motor’s.

SPAC transactions with automotive businesses have so far totaled nearly $10 billion — a trend that Kristi Marvin, a former investment banker who now runs the data site SPACInsider, called the summer of “deals with wheels.”

In June, Nikola, which intends to make heavy trucks powered by electricity and hydrogen fuel cells, merged with a SPAC. Investors have set its valuation at about $15 billion — more than half of what the market thinks Ford Motor is worth — even though Nikola hasn’t begun commercial production.

Apollo is just one of several prominent investors that have embraced SPACs. In late July, Pershing Square Tontine Holdings, which is run by the hedge fund manager Bill Ackman, raised $4 billion in an offering on the New York Stock Exchange. Social Capital, which is run by a former Facebook executive, Chamath Palihapitiya, has backed a handful, including one that merged with Virgin Galactic last year.

Michael Klein, a former Citigroup executive, has raised a handful of acquisition companies under the name Churchill Capital. Last month, one of his firms announced a $11 billion deal with the health care services provider MultiPlan.

So far this year, SPAC activity by dollar volume has almost doubled from all of last year, setting a record of $31.3 billion, according to SPACInsider. Credit Suisse has been the most active bank in underwriting the deals, SPACInsider reports, followed by Goldman Sachs and Citigroup.

“It’s always challenging to do a big I.P.O. above $1 billion, especially in today’s volatile environment and the time it takes to file and tell your story to investors,” said Boon Sim, the founder and managing partner of Artius Capital Partners, a private equity firm. Last year, for example, WeWork shelved its I.P.O. after investors grew wary about the office-space company’s management and financial prospects.

In June, Mr. Sim teamed up with Charles Drucker, a former chief executive of the payments company Worldpay, to start a $525 million SPAC that is looking to buy a technology or fintech company.

Pension funds, mutual funds and other investors have warmed to SPACs partly because low interest rates have forced them to search for higher returns.

Since 2018, SPACs have primarily acquired tech and industrial businesses, followed by energy and finance companies, with a typical deal value of close to $1 billion, according to a recent analysis by Goldman Sachs. Soon after offerings were announced, the average SPAC outperformed the stock market, Goldman found, but lagged the broad market after it completed an acquisition.

Mr. Ackman’s SPAC is the largest ever. His company says that because it has the right to buy additional shares of the target business, Pershing Square Tontine’s buying power…

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