SPAC Attack! (Part 3)
Allow me to applaud my colleagues Jonas Elmerraji and Ray Blanco for their diligent research in the first two parts of our series on SPACs. You can find Jonas’ SPACs primer here… and Ray’s technique for identifying the most worthy SPAC investments here.
As our team’s resident Futurist, in Part 3 I will feature a SPAC that I’ve been tracking very closely over the last few weeks — Graf Industrial Corp. (GRAF).
This particular SPAC has been in existence since October 2018 and was formed by SPAC veteran James Graf through an offer of 22.5 million units at $10 per share.
For 20 months, the SPAC quietly traded around the offer price.
But in July, Graf announced that it had decided on a target — a merger with Velodyne Lidar Inc.
On news of the merger, shares rocketed above $20… and then above $30 by early September, grabbing my full attention along the way.
See, I’m already on record for predicting the following…
I believe that lidar will be the most important breakthrough of the decade. In fact, I devoted the entire September edition of my premium newsletter, Future Wealth, to lidar technology and my bold prediction.
Put simply, lidar gives driverless vehicles their ability to “see.”
And since I’ve also predicted that America’s driverless infrastructure platform — a vast network of embedded chips and sensors — will become mankind’s greatest achievement ever, you can imagine my interest in Graf’s decision to pursue Velodyne.
Velodyne is a leader in “solid state” lidar for autonomous vehicles.
If Graf’s shareholders vote to approve the merger with Velodyne on Tuesday, Graf’s ticker symbol will change to VLDR and move from its current listing on the New York Stock Exchange to the Nasdaq.
If shareholders vote to reject the merger and Graf is unable to consummate another deal by the deadline set forth in its current charter (Oct. 31), Graf will be required to dissolve.
In other words, a lot is at stake on Tuesday.
Before we cover the investment opportunity, however, let’s first make sure you understand the technology.
“If music be the food of love, play on.” – William Shakespeare
Think about how your old CD player worked. You inserted a disc into the device… closed the lid… and a laser read the data, which was stored within the tiny grooves on the disc.
But in order for the laser to read the data, something weird needed to happen…
The disc had to spin.
By virtue of its need to spin, first-generation CD players were expensive to manufacture… they were larger than a brick… and they weighed roughly the same as a brick. Worse yet, even the slightest bump would cause the music to skip.
To the delight of consumers, CDs were replaced by MP3 players when solid-state memory chips emerged — no spinning required!
The evolution of lidar technology is shockingly similar.
If you’ve ever seen an autonomous vehicle cruising down a highway, you probably noticed the car’s rooftop-mounted lidar system — it looks like a spinning bucket of Kentucky Fried Chicken.
But despite being wildly inefficient and expensive — a spinning rooftop lidar system costs about $80,000 per unit — the technology accomplishes something truly world-changing…
It gives cars the gift of sight.
Enter solid-state lidar.
Following the same innovation path as the music industry in the late 1990s…
Solid-state lidar is cheaper, more reliable, unnoticeably small… and just like with our digital music, solid-state lidar doesn’t need to spin.
The result is a fully immersive geospatial experience.
“Solid-state lidar… with no moving parts, it promises to give self-driving cars sharper, better vision, at a fraction of the cost of old-school, electromechanical systems. Solid-state lidar will pave the way for the first self-driving cars you can actually afford,” reports Digital Trends.
The technology works by blasting hundreds of thousands of light pulses in a 360-degree circumference, which bump into any objects in their path such as buildings, trees and people. A sensor then determines the time it takes for the light waves to bounce off an object and return to their origin.
With the help of artificial intelligence, the lidar system is able to build a 3D model of its surrounding environment based on the velocity of the light pulses.
For autonomous vehicles’ usage, solid-state lidar allows cars to “see” objects like other cars, curbs, debris in the road and pedestrians.
Its range is nearly 300 yards… it’s accurate down to roughly four inches… it can see through bad weather… and because solid-state lidar doesn’t spin, it can run for 100,000 hours before needing maintenance — often longer than the life of a car.
Considering that solid-state lidar has tons of other useful applications, too — like giving robots 360-degree vision — I don’t believe the technology’s importance can be understated. But does that warrant paying a huge premium to invest in a potentially overpriced SPAC?
The Lowdown on the Graf/Velodyne Merger…
No matter how much I love Velodyne’s lidar technology… or how much I value its manufacturing agreements with Ford and Mercedes… or how much its revenue is projected to grow (from $100 million this year to $680 million in 2024)… or how enticing its 16 signed multiyear contracts are…
Paying such a high premium above the SPAC’s $10 offer price carries too much risk. Especially if you were to buy shares on Monday — 24 hours before shareholders vote to approve or reject the Graf/Velodyne merger.
If the merger fails, GRAF could plummet back to its original offer price.
Interestingly enough, after peaking above $30, Graf shares fell below $19 this week.
The decline suggests that a negative outcome on Tuesday is possible.
Should the merger fail, unless an extension is passed…
Graf only has until Oct. 31 to consummate a deal… otherwise, the SPAC must dissolve.
With that in mind, the prudent move is to wait for the outcome of the vote on Tuesday and then seek an entry into Velodyne (if the merger is approved) once shares commence trading on the Nasdaq.
Onward and upward,