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Harley-Davidson (HOG) LiveWire to Go Public Amid EV Frenzy

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Electric vehicles (EVs) are the future of the automobile industry. With green vehicles getting mainstream, many EV startups are going public. Legacy automakers are also revving up their electrification strides. Enterprises are capitalizing on the EV madness and seeing this as an opportunistic time to go public, as investors hunt for ”green” stocks.

U.S. iconic motorcycle maker Harley-Davidson (HOG - Free Report) is the latest company attempting to cash in on the increasing investors’ appetite for EV makers with its decision to take its e-bike unit LiveWire public. Harley-Davidson grabbed eyeballs with its announcement to spin off its electric Livewire unit into a public traded company via a SPAC merger.

Before delving into the transaction details and rationale, let's take a look at how special purpose acquisition companies (SPACs), often dubbed as blank-check companies, have disrupted the traditional IPO market and become the hot ticket for firms to go public.

EV SPAC Boom: LiveWire The Latest Aspirant

Merger with SPACs has become the most popular course of action for an EV IPO of late. SPACs are flourishing in the EV market, helping startups to avoid the complexity and strenuous paperwork associated with the traditional IPO. 

Various EV companies chose to go public last year via reverse mergers with SPACs. The trend continued this year with companies like Lion Electric (LEV - Free Report) and Proterra (PTRA - Free Report) and Charging Point (CHPT - Free Report) among others, which debuted on markets this year the SPAC way.

EV charging stalwart ChargePoint company started trading on the NYSE effective Mar 1, following the completion of its acquisition with Switchback Energy Acquisition Corporation. CHPT has more than 150,000 charging ports and a 70%+ market share.The fleet management solution, AC and DC fast charging solutions, balance charging costs with operational readiness for fleets of all sizes make ChargePoint one of the best choices for efficient and rapid electrification of any fleet.

Headquartered in Montreal, Lion Electric is a manufacturer of all-electric medium and heavy-duty urban vehicles. The company went public on May 7 via a merger with Northern Genesis Acquisition Corp. Lion Electric’s order book of more than $500 million positions it well to carve out a strong share in the growing electric bus market. LEV is on track to launch eight vehicles by 2022-end, which is set to boost prospects further. 

California-based Proterra made its NASDAQ debut on Jun 15 through a merger with ArcLight Clean Transition Corp. PTRA is currently suffering from losses but is actively focusing on generating positive FCF in the next few years. For first-half 2021, Proterra generated revenues of $113 million, up from $95.2 million in the corresponding period in 2020. The long-term battery-cell supply deal with LG Energy Solutions augurs well for PTRA. 

Although SPAC deals have been a popular way for EV makers to fast-track themselves in the U.S. auto market, they have primarily been the preferred choice for startups rather than units of traditional auto biggies. But in a major news yesterday, Harley-Davidson’s LiveWire unit is set to merge with AEA-Bridges Impact Corp. (“ABIC”) in a deal valuing the combined entity at $1.77 billion. With that, LiveWire will become the first publicly traded e-bike company in the United States.

Transaction Highlights

The deal will be funded by $400 million in cash held by ABIC, and $100 million investment each by HOG and Taiwan-based scooter manufacturer KYMCO.Subject to satisfactory closing conditions and approval of ABIC shareholders, the deal is scheduled for closure in the first half of 2022. Upon closure, LiveWire will trade on the NYSE under the symbol ”LVW.”

The combined entity is expected to have an enterprise value of $1.77 billion and a post-money equity value of $2.31 billion at closing. Harley-Davidson will own a 74% stake in the new company. ABIC’s shareholders will own around 17%, and ABIC’s founders and KYMCO will hold roughly 4% each. Being LiveWire’s majority shareholder, Harley-Davidson will continue to consolidate LiveWire's operational results for GAAP financial reporting purposes. LiveWire will be reported as a separate segment within HOG’s financials with GAAP disclosures.

Jochen Zeitz, CEO of Harley-Davidson, will be the chairman of the newly formed company. Zeitz will serve as acting CEO of LiveWire for up to two years following the completion of the transaction. Ryan Morrissey will take the position of the president of LiveWire.

Rationale Behind the Deal

We know that Harley-Davidson has been battling challenging demographic trends over the past few years, which have led to a decline in sales volumes. In sync with long-term growth objectives to streamline product portfolio,Harley-Davidson has deepened its focus on motorcycle models and technologies that better align with market trends.HOG’s ”Hardwire” strategy aims at long-term profitability and growth through refreshed product offerings, with electrification being at the heart of the plan. In a bid to regain its lost market share, Harley-Davidson launched a dedicated EV division, LiveWire earlier this year amid the soaring popularity of green vehicles.

Now by taking its e-motorcycle unit public via a SPAC deal, LiveWire will reap net proceeds of about $545 million, which would help speed up its go-to-market model, investments in new product offerings, as well as bolster manufacturing and distribution capabilities. The deal would also accelerate expansion in emerging markets where e-bikes are popular. For instance, the partnership with KYMCO, which is investing $100 million in LiveWire, will help in its expansion in the Asian markets. HOG acknowledges Kymco as a “strategic partner” that will aid in the manufacture and distribution of LiveWire’s e-bikes.

LiveWire’s Electric Ambitions

With significant investment and support from its strategic partners including HOG and KYMCO, the deal will enable LiveWire to carve its own brand identity that is distinct from its parent company and revolutionize the electric motorcycle industry.

Harley-Davidson launched the LiveWire One (the first model from the LiveWire unit) this summer. LiveWire will also include STACYC, the all-electric balance bikes for kids. The unit has an attractive pipeline of new products with breakthrough technology and features, with a clear roadmap for long-term profitability. LiveWire targets to sell more than 100,000 e-bikes in 2026, up from 387 this year, resulting in $1.8 billion in revenues. The EBITDA margin is expected to be 6.1% by 2026, with the long-term target being 15-20%. Per HOG’s latest presentation, the company envisions electric motorcycles to make up 10% of the North American market by 2026, 13% of the European market and 45% of the Chinese market.

Buy HOG Now

Harley-Davidson’s strategic plans to optimize product portfolio and expand customer base augurs well. The motorcycle giant is indeed going the extra mile to rebrand itself. The firm’s decision to list its e-bike unit in a SPAC deal will further unlock fresh growth opportunities. Considering the tailwinds, HOG is viewed as an attractive bet, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here

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