Among the Israeli technology companies that were merged into Wall Street-traded SPACs last year, there are two that have fared particularly badly, and are now traded at under $1. They are thus exposed to the receipt of a warning from the stock exchange concerning their futures as listed companies should the situation persist.
Digital insurance company Hippo Holdings (NYSE: HIPO), whose stock price has been under $1 for a month, has recently been joined by autotech company Otonomo Technologies (Nasdaq: OTMO), whose price has closed at under $1 in the past four sessions.
Otonomo is traded on the Nasdaq exchange, where, if a company’s stock price is below $1 for 30 consecutive sessions, the exchange sends it a warning, and gives it 180 days to return to conformity with the trading rules. If, after this period, its price is not back above $1, it is transferred to Nasdaq’s secondary market, the Nasdaq Capital Market. It can then receive a further 180 days to meet the listing conditions. If it fails to do so, it is delisted from Nasdaq.
In both cases, this is a threat that is still far from materializing, because if the companies’ stock prices do not rise above $1 in the ordinary way, they can announce reverse stock splits, consolidating two or three shares into one, and thereby rectify the situation from a technical point of view. Even so, the fall below $1 represents a symbolic event in the lives of the companies, just a year after they were listed.
2021 was a peak year for SPAC offerings on Wall Street. A SPAC (special purpose acquisition company) is a public company with no activity of its own, that raises capital with the aim of acquiring an existing company, thereby turning that company into a public company, within a set period of time.
The SPAC market flourished between mid-2020 and early 2021, but since then it has cooled off considerably, both because of a stricter regulatory approach by the US Securities and Exchange Commission, and because of wariness on the part of investors, who in several cases saw how optimistic promises were not fulfilled, and money invested evaporated. At the height of the SPAC rush, hundreds of SPACs raised very high sums. Some of these have made acquisitions, while some are still seeking acquisition targets.
A survey by "Globes" finds that twelve Israeli companies, or companies with Israeli connections, that were merged into SPACs in 2021, all show negative returns of 50% or more, and one, Otonomo, is traded at a market cap below the value of the cash it held at the end of the first quarter of this year.
Otonomo, founded and managed by Ben Volkow, offers a platform and a marketplace for data captured from connected vehicles. It has a market cap of $120 million, 90% below the $1.26 billion valuation at which it was merged into a SPAC last August. At the end of the first quarter of this year, it had $197 million cash.
Since the SPAC merger, Otonomo has used part of the capital it received to buy two companies: Israeli company Neura, a developer of city transport optimization technology; and British company The Floow, which provides software solutions for vehicle insurance companies. Altogether, the cost of these acquisitions is up to $119 million.
Otonomo is a notable example of the loss of value of companies bought by SPACs, but it is by no means alone. Another Israeli autotech company, REE Automotive (Nasdaq REE), developer of a modular vehicle platform that contains all the drive components for an electric vehicle, has seen 92% of its merger valuation wiped out. It is currently traded at a market cap of $303 million, which compares with a post-money valuation of nearly $3.6 billion when it was acquired by a SPAC. In REE’s case, although its stock price has tumbled towards $1, it is still above that level. Other Israeli autotech companies - Arbe Robotics (Nasdaq: ARBE), Innoviz (Nasdaq: INVZ), and Valens Semiconductor (NYSE: VLN) - have performed slightly less badly, with negative returns of 50-70% since merging with SPACs.
For the whole of 2021, REE’s revenue was just $6,000. Otonomo had revenue of $1.7 million, Arbe $2.2 million, and Innoviz $5.5 million.
The case of Valens is a little different. This is a company that provides chips for the vehicles market that facilitate high-speed communications within the vehicle, but it also serves the market in which it started out, namely chips for audio-video systems. In the first quarter of this year, its revenue was $21.6 million, and for 2021 as a whole it was $56.9 million.
Fintech and insurance haven’t shone either
It is not just autotech companies that have taken a hit. The weakest return by an Israeli technology company merged into a SPAC is that of digital insurance company Hippo, which has a market cap of $469 million, 92% below its post-money merger valuation, and, as mentioned, like Otonomo it has a stock price below $1. Hippo, which focuses on home insurance in the US, recently announced the replacement of its founding CEO Assaf Wand by Richard McCathron, who was president of the company.
Another company that has announced changes in its management since merging into a SPAC is Talkspace (Nasdaq: TALK), which was founded by Israeli entrepreneurs Oren and Roni Frank in 2012, and offers virtual psychological therapy. After some recovery in its stock price recently, the company has a current market cap of $257 million, representing a negative return of 84% in comparison with its merger valuation.
The best, or rather least bad, return is that of fintech company Payoneer Global (Nasdaq: PAYO), which has a market cap of $1.9 billion, 49% below its post-money valuation when it reported its SPAC merger.
Published by Globes, Israel business news - en.globes.co.il - on July 19, 2022.
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