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Transfer over Nikola: A brand new electrical car SPAC known as Lordstown is forming and shares are rising

Corp. Electric Pickup Endurance Lordstown Motors Corp. will be exhibited on Thursday June 25, 2020, during a unveiling event in Lordstown, Ohio, USA.

Matthew Hatcher | Bloomberg | Getty Images

Shares in DiamondPeak Holdings, a special-purpose acquisition company, rose more than 16% in early trading on Monday after the company announced it would merge with electric vehicle maker Lordstown Motors. The combined company will trade on Nasdaq under the new symbol "RIDE".

This year, the deal represents two areas of particular interest to investors: Special Purpose Acquisition Companies (SPACs) and start-ups of electric vehicles.

SPACs are also known as blank check companies because investors spend money without knowing when or what their capital is being used for. As soon as the SPAC goes public, the goal is to acquire it or to merge it with a private company to bring it public.

Given market uncertainty and a weak IPO market, Dealogic said SPACs are well on the way to raising a record amount of capital this year.

The DiamondPeak-Lordstown Motors merger, which is expected to close in the fourth quarter of 2020, is at least the third agreement between a SPAC and an electric vehicle start-up this year.

In June, Nikola Corporation began trading after a reverse merger with VectoIQ, and in July electric vehicle start-up Fisker announced that it would merge with Spartan Energy Acquisition, a special purpose vehicle company supported by Apollo Global Management. Investor enthusiasm for EV comes from an increase in Tesla shares of more than 240% this year.

While investors initially stacked up in Nikola and increased shares by 150% in the first four trading days, part of that buzz has since cooled, and the share closed at $ 30 on Friday.

As more players enter the room – start-up EV maker Rivian announced in July that it raised $ 2.5 billion in new funds – competition is growing. In addition, Tesla's previous delivery problems underscore how difficult it can be to launch an electric vehicle.

According to Monday's press release, $ 675 million of expected gross proceeds will be used to develop and market Lordstown's all-electric pickup called Lordstown Endurance.

Since the release of the prototype for the pickup on June 25, the company has received more than 27,000 pre-orders, corresponding to potential sales of more than $ 1.4 billion. The majority of the reservations come from commercial fleet customers. In November 2019, Lordstown Motors bought a 6.2 million square meter former General Motors assembly plant to speed up the production process.

The merged company's implicit pro forma equity value is approximately $ 1.6 billion. This includes General Motors' investments of $ 75 million and commitments from institutional investors, including fidelity management.

DiamondPeak's investments raised $ 250 million when it went public in March 2019, with the company initially aiming for a "property-related business."

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