Blank check companies target battery and charging suppliers

Romeo Systems Inc., which makes lithium-ion battery modules and packs for commercial electric vehicles, is the latest vehicle electrification technology company to pursue public ownership through a reverse merger.

Romeo, based in the Los Angeles suburb of Vernon, California, announced a definitive agreement Monday with RMG Acquisition Corp. (NYSE: RMG), a special purpose acquisition company (SPAC), to combine businesses. Romeo Power’s pro forma valuation would be $1.33 billion.

Energy-related SPACs are breaking out

Also on Monday, executives of Hyliion Holdings Co. (NYSE: HYLN) rang the opening bell on the New York Stock Exchange (NYSE). It celebrated the Sept. 28 completion of its reverse merger with Tortoise Acquisition Corp., a SPAC that raised $560 million for the startup electric driveline maker.

On the infrastructure side, Switchback Energy Acquisition Corp. (NYSE: SBE) began the SPAC process with charging station developer ChargePoint Inc. on Sept. 24. That deal would value ChargePoint at $2.4 billion. ChargePoint, which has 115,000 charging stations, would get $542 million when the reverse merger closes.

Like Tortoise Acquisition and Switchback Energy, RMG is a so-called blank check company. Formed in 2019 specifically to target an energy technology company for a merger, RMG raised $384 million through an initial public offering in the SPAC. It also raised $150 million through the sale of discount shares to investors in a private investment in public equity (PIPE) offering. 

Picked from 150 candidates

Romeo will get that money when the deal closes. That is expected by the end of the fourth quarter when the NYSE ticker symbol will become RMO.

“Since our IPO in early 2019, we have evaluated nearly 150 investment opportunities in search of a company with an industry-leading disruptive technology in the industrial or energy sector,” RMG CEO Robert Mancini said in a press release.

“Romeo Power stood out as a differentiated leading battery technology company for commercial electric vehicles, a sector that we think is at an inflection point and poised for unprecedented growth.”

The global total addressable market (TAM) for commercial vehicles is estimated to be $665 billion, with over 17 million vehicles sold annually. In North America and Europe, the TAM is estimated to be $225 billion, with over 7 million vehicles sold annually, according to the Romeo and RMG press release.

Generating revenue

Romeo has $300 million of contracted revenue with $2.4 billion in uncommitted revenue. It also has a joint venture with Tier 1 supplier BorgWarner Inc. (NYSE: BWA), which invested $50 million in 2019 for a 20% stake in the company. The alliance allows Romeo to grow faster through access to BorgWarner’s customer base, supply chain and manufacturing expertise. 

“We have an order book with customers that make up nearly 70% of the North America Class 8 commercial vehicle market, including both traditional companies as well as next-generation, up-and-coming companies,” Lionel Selwood Jr., Romeo president and CEO, said on a conference call Monday. 

Romeo claims the energy density of its battery packs leads the industry. That allows greater range between chargings and shorter charge times. Its target customers in North America are Class 4-8 truck manufacturers.  

A Nikola deal?

One such deal reportedly is to provide battery packs to startup Nikola Corp. (NASDAQ: NKLA), another company that became public via a reverse merger. The Wall Street Journal reported Sept. 21 that Nikola was testing Romeo batteries for use in the Nikola Tre. 

The heavy-duty cabover model is expected to go into production next year in Germany in a joint venture with Iveco, a subsidiary of CNH Industrial N.V. (NYSE: CNHI). CNHI is an investor in Nikola.

A Nikola spokeswoman told FreightWaves on Tuesday the company has “not announced anything public with Romeo.” 

Recently departed founder and Executive Chairman Trevor Milton said Nikola made its own batteries. Chief Financial Officer Kim Brady told analysts in a virtual meeting in September that Nikola designs its own battery packs. He did not discuss manufacturing.

Other partnerships

Romeo Power is partnering with HG Ventures, an early investor and PIPE participant, to co-develop a battery reuse and recycle facility for Romeo Power’s batteries.   

HG Ventures’ parent, Heritage Group, has committed to a pilot program to convert more than 500 diesel trucks in its fleet to battery-electric vehicles using Romeo Power’s batteries between 2021 and 2025. 

Republic Services (NYSE: RSG), is the second-largest recycling and waste disposal company in the United States. It ha a fleet of more than 16,000 vehicles. Republic invested in the PIPE and intends to enter into a strategic alliance, Selwood said.

Republic, which took delivery Tuesday of a Mack Trucks LR Electric refuse hauler, has ordered 2,500 Tre-based garbage trucks from Nikola. The company did not acknowledge a question Tuesday about leveraging its investment in Romeo Power to have its batteries used by companies from which it orders electric trucks.

Related articles:

SPAC shareholders approve merger to make Hyliion public

Nikola explains what it does and doesn’t do on electric trucks

Republic Services orders 2,500 electric refuse trucks from Nikola

Click for more FreightWaves articles by Alan Adler.