LeddarTech bets on SPAC rebound as Quebec auto sensor software maker aims for Nasdaq listing

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Quebec City automobile sensor software developer LeddarTech Inc. plans to go public by merging with a special purpose acquisition company in a bet it can overcome weak investor interest in such transactions or for technology initial public offerings as a whole.

“We believe it’s more than a dream,” said LeddarTech CEO Charles Boulanger in an interview. “Software is becoming the centrepiece in automotive; every original equipment manufacturer is changing the architecture in their next platforms to be software-first. We’re one of the few pure-play software opportunities.”

LeddarTech said this week it will merge with Prospector Capital Corp. PRSRU-Q, a publicly traded SPAC led by former Qualcomm president Derek Aberle. Prospector co-founders Nick Stone and Mike Stone, who are not related, are partners with LeddarTech backer FS Investors.

The combined company would raise as much as US$66-million in gross cash proceeds including up to US$23-million from Prospector’s trust account and US$43-million in a private placement from LeddarTech investors. After deal costs and debt repayment, LeddarTech would get US$49-million.

LeddarTech said the combined entity’s equity would be valued at US$348-million. That’s less than half the US$772-million valuation it commanded after raising US$140-million in 2022.

“We cannot wait for financial markets to stabilize, we have to position ourselves now,” Mr. Boulanger said, acknowledging that going public now comes with “pros and cons.” Despite a lower valuation “we’re playing the long game to position the company for success” by raising two years of funding.

LeddarTech is at a turning point, 16 years after spinning out of Canada’s National Optics Institute to develop LIDAR (light detection and ranging) technology. It has raised more than US$200-million in equity from investors including Osram Licht, Mitsubishi Motors, LG Electronics, Fidelity Investments, Aptiv, and, from Canada, BDC Capital, Export Development Canada, Desjardins Capital, Fonds de solidarité FTQ and the Quebec government. It has more than 80 granted patents and 180 employees.

No, you can’t buy a self-driving car yet, but a lot of people seem to think you can

Last fall LeddarTech shut its LIDAR hardware unit, cutting 60 jobs, even though it had generated US$8-million in revenue in 2021. The big play for LIDAR has been self-driving cars, but it is a market that could be years from flourishing, and there are many players. Instead, Mr. Boulanger said LeddarTech decided to focus on making “very differentiated software” for a market that exists now: advanced driver assistance system (ADAS)-enabled vehicles that rely on sensors to protect against collisions.

Current ADAS systems rely on vehicle-mounted sensors to detect and classify what they see, which Mr. Boulanger said is costly and complex, requiring time-consuming fixes to system software when hardware changes. LeddarTech’s system instead does all the work at the software level and can work with any physical sensor, using artificial intelligence to construct a virtual 3D model of a vehicle’s surroundings to inform responsive action by the ADAS system. LeddarTech says its solution has more range, greater reliability, requires less computing power and maintenance and is cheaper than current technology.

But it requires buy-in from automakers and original equipment manufacturers (OEMs), who must first award LeddarTech with design contracts, then pay it fees once the cars come to market much later. At this point, “we do not have a full award design win with an OEM,” Mr. Boulanger said, although he noted a single deal could generate US$100-million-plus in annual revenue. “We’re working on several projects. That’s why we’re going public. We’re pretty confident we’ll sign some.”

LeddarTech can’t say when or if any deals will materialize. Other risks it identifies in investor materials include the fact it has not generated “meaningful revenues” and loses money, leaving “significant doubt” it can continue as a going concern.

Mr. Boulanger declined to comment on projections LeddarTech made when it pitched to private investors in 2021 and early 2022. At the time, it forecast the company would generate more than US$500-million in high-margin software revenues in 2025 and more than three times as much in 2027. At the time “it was in fashion to put projections that were all over the place,” he said. “I think we’re in a different market” now. “People want to see more value.”

The company faces other questions. SPACs are controversial, in part since investors in blank-cheque entities can pull out before the merger along with their money. Prospector unitholders have already redeemed 93 per cent of the US$325-million originally raised. Many SPAC deals, including several in the sensor space, have been a bust.

With SPACs out of fashion, the parties are enticing remaining Prospector unitholders to stay by offering one bonus share in the merged company for their US$23-million. “We believe we’ll maintain a good chunk of the trust,” Mr. Boulanger said. If not, there will be less funds for LeddarTech.

One person who isn’t sticking around is Mr. Boulanger, who joined as CEO in 2013 at the behest of directors for a job that was supposed to be temporary and part-time. The veteran executive, who turns 66 in July, said he would step back to an adviser role in favour of president Frantz Saintellemy, whom he has groomed to take over for years. Mr. Boulanger will remain on the board.