Electric vehicle producer Lion Electric Co., backed by the Desmarais family, is going public through a merger with a U.S. entity that will inject US$200-million of fresh capital into the Canadian startup.
Montreal-based Lion is merging with Northern Genesis Acquisition Corp., a special purpose acquisition company (SPAC) that listed on the New York Stock Exchange in August. The deal, which is technically a takeover, allows Lion to go public without undergoing the traditional regulatory process for initial public offerings.
As part of the transaction, Lion will raise US$200-million through a private placement, and the company will also get access to the US$320-million in cash that Northern Genesis has sitting on its balance sheet. Lion currently produces seven models of medium-duty and heavy-duty trucks and buses, and the new money will help expand its manufacturing capacity in the United States and develop its battery systems.
Lion is going public amid intense investor interest in electric vehicles, demand that has helped to propel Tesla Inc.’s valuation north of US$500-billion. However, recent troubles at electric truck maker Nikola Corp., whose shares have plunged 68 per cent from their June peak on fraud allegations, including a 24-per-cent drop on Monday, have forced some reality checks among investors.
Lion was founded in 2008 by Marc Bédard, and the company’s goal has been to electrify the heavy-duty vehicle industry. In its early days, Lion developed an all-electric bus before starting to work on a proprietary battery management system. The company delivered its first bus in 2016 and received an investment from Power Corp. in 2018.
Lion unveiled an all-electric truck in 2019 and the company expects to produce 110 vehicles this year at its plant in Montreal. In June, 2020, Lion signed a commercial contract with an unnamed partner that reserves necessary manufacturing capacity to deliver up to 500 trucks a year from 2021 to 2025. The partner was given warrants that will allow it to purchase up to 19.99 per cent of Lion.
In order to help build this capacity, particularly in the U.S., Mr. Bédard said the company needed to raise about US$500-million, which prompted the consideration of an IPO. “With the amount of capital we were looking for, it’s better to go public,” he said in an interview.
But it was Lion’s existing production that intrigued Northern Genesis. As the SPAC’s vice-chair Ian Robertson put it in an interview, a lot of electric vehicle makers have “aspirational business plans.” Lion, he said, “is kind of like the overnight success that’s been 12 years in the making.”
Lion’s Mr. Bédard says he believes this is one of his company’s key differentiators. “The big difference between us and other OEMs [manufacturers] is we’re selling buses and trucks today,” he said, which allows potential customers and investors to talk to existing clients. The company hopes to achieve positive free cash flow in 2023.
Power Sustainable Capital, an arm of the Desmarais-controlled Power Corp. of Canada, will own 31 per cent of Lion once the deal closes, while Northern Genesis’s investors will own 20 per cent. The SPAC is run by Mr. Robertson and Chris Jarratt, co-founders of Algonquin Power & Utilities Corp., and both men will join Lion’s board of directors.
The fresh capital gives Lion an implied enterprise value of US$1.5-billion, based on the equity raise at $10 a share. However, SPAC deal values are often subject to interpretation because the founders are given preferential shares. Northern Genesis’s original shareholders, including Mr. Robertson and Mr. Jarratt, were given 7.5 million shares priced at an average price of $0.0033 cents a share, which are now worth $105-million, based on the SPAC’s mid-day trading price Monday.
Once the takeover closes, Power Corp.’s investment in Lion will have a fair value of $812-million, which represents a net asset gain of $737-million since the original investment.
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Tim Kiladze