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CarLotz (LOTZ) & Shift to Merge, Form E-Commerce Retailer

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CarLotz, Inc. recently entered into a definitive agreement with Shift Technologies Inc. for a stock-for-stock merger. The combined company will continue to trade on Nasdaq under the ticker SFT.

The two businesses have compatible geographies, where Shift’s focus is on the West Coast, while CarLotz enjoys a strong presence in the mid-Atlantic region. Shift’s proprietary inventory acquisition engine and at-home delivery offering will be an added advantage to CarLotz as it can work upon a differentiated inventory and expand its regional foothold. On the other hand, CarLotz’s presence to scale up its dealer marketplace on the East Coast will be beneficial for Shift. The deal will thus amalgamate the most profitable assets of both companies and lead them to mutually reap the benefits. The merged company has the potential to be a leading omni-channel auto retailer. It aims to be the best online and in-person used car purchasing platform by offering the broadest assortment of used vehicle inventory to customers and allowing flexible transaction. The combined company is anticipated to generate efficiencies in cost and processes.

Shift said it plans to consolidate the merged operations and is modifying its physical expanse and headcount accordingly. In light of this, CarLotz, intends to close seven inventory inspection, reconditioning and storage facilities, termed hubs, as part of the strategic review. The closings will take place during the third and fourth quarters and will bring down CarLotz’s workforce by 60%, per the Security and Exchange Commission filing. CarLotz will close hub locations in Seattle, San Diego, California, Texas, Houston, San Antonio and Dallas.

The workforce reduction and hub closures will lead to the company incurring an expected one-time severance cost of nearly $2.4 million and a one-time non-cash charge of $11.5 million to $14.5 million.

In June, the company had said that it would be closing 11 of its 22 hub locations as part of a strategic reviewing of its business.

The merger is expected to close in the fourth quarter of 2022, subject to approvals by shareholders of both companies. Per the terms of the agreement, CarLotz shareholders are expected to receive nearly 0.692158 shares of Shift common stock for each share of CarLotz common stock. On the basis of the expected exchange ratio, upon the closing of the merger, Shift’s then-current equity holders will own nearly 52.9% of the combined company, and CarLotz’s then-current equity holders will own around 47.1% of the combined company, calculated on a fully diluted basis. Upon closing, the merged company is anticipated to have a cash position of nearly $125 million.

Shift’s financial advisors are Centerview Partners and Cohen & Company Capital Markets, a division of J.V.B. Financial Group, LLC. Jenner & Block LLP is its legal counsel. CarLotz financial and legal advisors are William Blair & Company and Freshfields Bruckhaus Deringer LLP, respectively.

San Francisco-based Shift is a reputed end-to-end auto e-commerce platform dealing in the buying and selling of used cars. It aims for a technology-intensive framework that makes purchase and ownership of used cars seamless for customers. Its digital solutions, online purchase option with financing and vehicle protection products give it a notable position in the e-commerce domain.

Based in Scott’s Addition, CarLotz is a used vehicle consignment and Retail Remarketing business that provides access to the previously unavailable retail sales channel to corporate vehicle sourcing partners and retail used vehicle sellers. Also, it provides buyers with prices below traditional dealerships, on average. It became a publicly traded company in January 2021 through a merger with blank-check acquisition company Acamar Partners Acquisition Corp.

CarLotz belongs to the Zacks Auto-Tires-Trucks sector.

Its close peers in the auto space are BRP Group Inc. (DOOO - Free Report) and BorgWarner Inc. (BWA - Free Report) .

BRP Group’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters. DOOO pulled off a trailing four-quarter earnings surprise of 56.81%, on average

BorgWarner’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters. BWA pulled off a trailing four-quarter earnings surprise of 29.45%, on average


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