Most of the Israeli technology companies that have announced mergers into SPACs in the past few months have completed the move and have started to be traded on Wall Street. They were joined this week by digital intelligence company Cellebrite. Among the companies yet to complete their SPAC mergers are Valens and eToro. Both have published announcements indicating that they are making progress in that direction.
A SPAC (special purpose acquisition company) is a company founded without any activity, but with the aim of raising money from the public and finding an acquisition target within a specified period of time. If it fails to do so, the money raised is returned to the investors. When the SPAC decides on an acquisition target, the shareholders in it can choose whether to keep their investment in the merged company or cash in their shares.
SPACs were one of the outstanding trends on Wall Street from the middle of last year to the middle of this year, but the trend has waned in the past few months. Meanwhile, several Israeli companies have enjoyed the deep pockets of SPAC companies, most of them from the US, and become public companies in the process.
The cooling of the SPAC trend is manifest in reduced exposure of investors to these stocks, while Israeli companies that became listed in a merger with a SPAC have mostly seen distinctly negative trends in their stock prices, and some are well below their merger valuations. Insurtech company Hippo Holdings (NYSE: HIPO) has fallen 40%; autotech companies Otonomo Holdings (Nasdaq: OTMO) and Innoviz Technologies (Nasdaq: INVZ) have fallen 36% and 29% respectively, while content recommendations company Taboola (Nasdaq: TBLA) has fallen 27%.
Unlike companies that make a regular IPO, companies that merge with SPACs don’t always benefit from analyst coverage. Some of them come along with fantastic valuations in the first place, on the basis of a promise of rapid future growth, and the pricing is set on this basis, so that when the market cools they suffer from sharp declines in their share prices.
REE: Analyst recommendations no help
The list of steep decliners following SPAC mergers has now been joined by Israeli autotech company REE Automotive (Nasdaq: REE), which started to be traded in early July at a valuation of $3.1 billion. The amount raised was cut from the originally planned offering, because of a high rate of shareholders cashing in their shares in the SPAC, and totaled $288 million.
Since then, the stock has won warm recommendations from analysts, but that has not prevented it from plummeting by 38% to around $5.6, giving a market cap of $1.77 billion.
The cause of the drop is apparently filing of a prospectus with the US Securities and Exchange Commission (SEC) the end of the lockup period, enabling investors who invested in the company at the time of the flotation through the private placement that accompanied the merger (PIPE) - among them Clal Insurance, Meitav Dash, Dor Alon and Blue Square - to sell shares. REE could receive a further $179 million from the exercise of warrants. The move is actually a technical one; about a month after the merger, the company is required to make the filing to enable shareholders to sell shares, and it is not at all clear that they will choose to do so.
REE, which was founded by Daniel Barel and Ahishay Sardes, has developed a modular platform that contains all the drive components required for an electric vehicle. In the second quarter of 2021, the company had no revenue at all, which compares with revenue of a few hundred thousand dollars in the second quarter of 2020, and posted a loss of $31.2 million, or $11.1 million on a non-GAAP basis.
Cellebrite raises less than planned
As mentioned, Cellebrite is the newest addition to the list of Israeli companies carrying out flotations through a SPAC merger. The company began to be traded on Nasdaq under the ticker symbol CLBT. Cellebrite, headed by Yossi Carmil, is in digital intelligence, providing government agencies with solutions for extracting information from electronic devices and analyzing the information.
The company was merged with TWC Tech Holdings at a valuation of $2.4 billion. On its first day of trading, the stock weakened by 2%. The deal won a majority of 94.4% if the SPAC shareholders, who were apparently not much moved by an open letter sent to them (and to others involved in the deal) in July by human rights organizations and academics, urging that Cellebrite should not become a public company because, they claimed, it had admitted that its products were liable to endanger human rights (the company denies the claims).
In the end, the amount raised was less than planned. Instead of $480 million, Cellebrite raised $370 million, after some shareholders in the SPAC cashed in their shares.
"As a publicly traded company, we believe we are well positioned to help to create a safer world with our Digital Intelligence solutions suite, through the ethical use of our solutions, and to deliver sustainable value for all of our stakeholders." Carmil said on completion of the merger.
Published by Globes, Israel business news - en.globes.co.il - on September 2, 2021
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