Last month, shares of electric vehicle manufacturer Polestar (NASDAQ: PSNY) were publicly listed on the Nasdaq exchange under the ticker "PSNY." Founded in 2017 and headquartered in Sweden, Polestar manufactures and sells premium electric vehicles or EVs.
Polestar raised $890 million in the process and went public via a SPAC or special purpose acquisition company merger. The company disclosed it would utilize the proceeds of the capital raised to expand its portfolio of vehicles and improve profit margins by increasing manufacturing capabilities and benefiting from economies of scale.
Also known as a "blank-check company," a SPAC is created with no commercial operations in mind. It raises capital through an IPO, which is then used to acquire an already existing company via a reverse merger.
While SPAC mergers have been around for several years, they have gained popularity since 2020. In 2021, 613 SPAC listings raised $145 billion, an increase of 91% year-over-year. Once the SPAC is formed, the founders may target one or more companies for acquisition. But these target companies are not disclosed during the IPO, so investors will not gain visibility into the company that will be acquired.
The capital raised during a SPAC IPO is secured in a trust account. It can be used to fund an acquisition, or it will have to return the proceeds to investors, indicating a liquidation of the entire process. Generally, there is a defined period -- around two years -- for a SPAC to complete the acquisition.
Gores Guggenheim is the blank-check company that announced a reverse merger with Polestar last year, and the SPAC merger was completed in June.
Auto giant Volvo owns 48% of Polestar, and the latter is looking to scale operations in several countries. Prior to the SPAC merger, Polestar delivered over 55,000 vehicles in the U.S., Europe, and China, to date.
Polestar emphasized that it aims to add three vehicles to its product portfolio, including an SUV, a sedan, and a midsize crossover. The EV manufacturer expects to ship 290,000 vehicles annually by the end of 2025.
Since the start of 2021, other electric vehicle manufacturers, including Lucid Motors, Nikola, and Fisker, went public via SPAC mergers.
A reverse merger or a SPAC may be quicker and cheaper than traditional IPOs. It also insulates the company from timing risks which are often critical to the performance of a company that goes public through an IPO process. In addition to faster price discovery and lower costs, SPACs are not as heavily scrutinized as IPOs providing the former with more flexibility to list publicly.
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