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Switchback Energy Acquisition Corp. (NYSE:SBE) is one of the most attractive Special Purpose Acquisition Companies (SPACs) currently. With the stock’s year-to-date gains exceeding 100 percent, investors appear willing to continue bidding up the SPAC’s share price as the deadline for the merger with the EV charging service provider, ChargePoint, draws ever closer.
As a refresher, a SPAC is a public entity that raises funds through an IPO in order to acquire a private company. As shares of the combined company continue to trade on the stock exchange, the mechanism offers a cheaper and easier route for a private company to go public. Moreover, the shareholders of a SPAC may redeem their shares for cash up until the proposed business combination with the target entity achieves closure, thereby minimizing the potential for a loss.
Switchback Energy Acquisition and ChargePoint had entered into a definitive merger agreement on the 23rd of September, with the transaction expected to close within the fourth quarter of 2020. The combined company is expected to have an enterprise value of around $2.4 billion. Bear in mind that Switchback Energy Acquisition currently retains around $317 million in IPO proceeds in its trust account. When combined with a PIPE investment of $225 million from institutional investors, the combined company will have access to around $683 million in cash (assuming no share redemptions).
Switchback Energy Acquisition certainly chose its merger target wisely. As an illustration, ChargePoint is currently one of the largest EV charging service providers in the world, with over 4,000 partner businesses and organizations offering 115,000 unique charging points. Moreover, the company also offers access to an additional 133,000 public charging points through network roaming integrations across North America and Europe. ChargePoint employs a CAPEX-light approach by selling host businesses and organizations the necessary charging hardware – including AC level 2 to DC fast charging equipment – in order to electrify parking spaces. The resulting charging network is integrated via a mobile app.
With EVs expected to account for around 30 percent of new vehicles sold in the U.S. and Europe by 2030, ChargePoint’s Total Addressable Market (TAM) is expected to continue to grow in tandem as well. Moreover, the company is currently in a dominant position in the United States, controlling around 73 percent of the L2 charging network. In light of ChargePoint’s very attractive positioning in the market, it is hardly surprising that investors continue to bid up the share price of Switchback Energy Acquisition in the pre-merger phase. In addition, with just a few weeks left before the conclusion of the Q4, the anticipated closure of the merger agreement is just around the proverbial street corner, adding further fuel to stock’s scorching rally.
