EVBox: Merger Concerns Are Substantial But So Is The Upside

Eric Sprung profile picture
Eric Sprung
486 Followers

Summary

  • Founded in 2010, Amsterdam-based EVBox is a producer of EV charging hardware and software systems, with a network of more than 190,000 charge ports in 70 countries.
  • Formerly a unit of the French utility Engie, EVBox was taken public via a SPAC merger with TPG Pace in December 2020 at a post-merger valuation of $1.4 Billion.
  • There have been concerns that this deal will fall through and shares have pulled back more than 60% from their February highs.
  • TPG has a stellar track record of bringing private companies to public markets, with 5 successful SPAC IPOs and 55 total IPOs over the last 10 years.
  • I would avoid adding to one's position until further clarity is available regarding the announced SPAC merger.

Charger for electric car
Young777/E+ via Getty Images

Investment Thesis

EVBox (NYSE:TPGY) is a potential beneficiary of the upcoming global EV charging infrastructure build-out. The global electric vehicle charging infrastructure market is projected to cross 14B in annualized revenue by 2026, a 36% CAGR over the next 5 years.

As a current market leader in Europe, and with plans to expand into the US EV charging market, EVBox may be a good long-term bet for investors trying to get exposure to the growing EV infrastructure industry.

Source: EVBox Group Investor Presentation

EVBox anticipates even faster revenue growth with breakeven EBITDA by 2023 and improved gross margins with a higher percentage of revenue from software and services.

Source: StockCharts.com

Investors may feel compelled to buy shares in this high-growth EV charging company as they have fallen more than 60% from their highs in February. However, there are recent concerns that the SPAC merger will fail to go through.

Warranted Concerns About the Merger

TPGY released an 8-K in May highlighting new merger developments (edited for readability)

The Company no longer expects to be in a position to close the Business Combination by June 2021 as previously disclosed. Significant uncertainty exists regarding whether the Business Combination will ultimately be completed. The 2020 EVBox Group financials required to be filed in the Registration Statement on Form F-4 will take significantly longer than previously anticipated. The Business Combination Agreement may be terminated by either the Company or Engie Seller. However, the Company has the unilateral right until May 28, 2021 to extend the Outside Date to September 6, 2021.

Source: Company 8-K May 17

In a follow-up 8-K, the company announced a successful extension of the Outside Date (edited for readability)

On May 31, 2021, TPGY, Dutch Holdco, New SPAC, Engie Seller and EVBox Group entered into the Second Amendment to Business Combination Agreement, have extended the Outside Date (as defined in the Business Combination Agreement) from June 8, 2021 to August 6, 2021. This provides TPGY the right to terminate the Business Combination Agreement in its sole discretion at any time during the 15 day period following the date on which EVBox Group delivers to TPGY the 2020 Audit.

TPGY expects to continue discussing with Engie Seller various alternatives with respect to the Business Combination. However, it is unclear whether and when necessary information, including the 2020 Audit, will be available to TPGY in order to potentially renegotiate the Business Combination's economic and other terms. Significant uncertainty therefore exists regarding whether the Business Combination will ultimately be completed.

The Company expects to have further discussions with Engie Seller regarding these matters to better evaluate the various alternatives, but has not determined whether it intends to exercise any such rights and there is no certainty that it will exercise such rights or that the Company will otherwise successfully renegotiate any economic or other terms of the Business Combination Agreement with Engie Seller.

As a result, as of the date of this Current Report, the Company has significant doubts regarding the likelihood that the Business Combination will be completed on the terms currently contemplated or at all.

Source: Company 8-K May 31

The company has bought itself time by extending the outside date but is clearly working against the clock to get the merger finalized. The market's merger concerns seem to be well founded.

Potential for Approval

TPG is an impressive merger partner with 5 successful SPAC mergers to date, all of which have traded above $12 after closing. I took a small speculative position in TPGY, hoping that the company could work through these merger uncertainties, with the help of its impressive sponsor.

Source: Company Presentation

With the stock trading down to the $12 range, I view my current position as a call option on the company's future. I am however avoiding purchasing more shares at this time, as the company's merger concerns are real.

How to Play the Stock

There are clear risks with an investment in TPGY at this time. EVBox, the company which TPG Pace is attempting to take public has enormous long-term potential, and its downside risks are well known.

If the announced merger is called off, the stock will immediately drop over 20% to its cash value. However, if the audited financial statements are provided in time and the market's fear of dissolution is removed, TPGY shares may rocket higher, especially given its attractive valuation when compared to ChargePoint (CHPT). New investors should wait for further guidance regarding this issue before buying the dip.

This article was written by

Eric Sprung profile picture
486 Followers
Retail investor attempting to identify winning companies and ETFs to hold for the long term. Strong conviction cuts both ways, remain humble and you will never lose. Disclaimer: Articles are based on my own opinions and I am not a licensed financial advisor. Investing decisions are personal, and should be evaluated in the context of one's unique risk tolerance.
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Disclosure: I/we have a beneficial long position in the shares of TPGY either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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