February 19, 2021

Why SPAC CF Finance Acquisition III’s Stock Is Trading Down Today

What happened Shares of CF Finance Acquisition III (NASDAQ:CFAC) were trading lower on Wednesday after…

What happened

Shares of CF Finance Acquisition III (NASDAQ:CFAC) were trading lower on Wednesday after the special purpose acquisition company (SPAC) announced that it has struck a deal to merge with lidar maker AEye.  

As of noon EST, CF Finance Acquisition III’s shares were down about 17.1% from Tuesday’s closing price.

So what

Here’s the background. California-based AEye was started in 2013 by Luis Dussan, an engineer who had worked for years on targeting systems for military fighter jets. Of note, these are artificial intelligence-based systems that have to be able to see, identify, and respond to objects very quickly. 

Dussan (now president and chief technology officer) and his team have applied that kind of thinking to lidar-based systems for cars. AEye’s offering isn’t just lidar hardware, it’s a whole machine-learning sensor system that is designed for vehicles using advanced driver-assist systems and (in time) autonomous vehicles as well. 

In another intriguing twist, AEye is partnering with (rather than competing with) top-level auto industry suppliers, notably German giant Continental AG, which will in turn sell AEye’s systems to automakers.

Image source: AEye.

Here are the high points of the deal itself.

  • The deal will raise $455 million in gross proceeds for the post-merger company (which will retain the AEye name.) That includes $230 million from the SPAC, and another $225 million from a private investment in public equity (PIPE) fund.
  • The PIPE’s investors include venture-capital arms of General Motors, Subaru, Intel , and German auto supplier Hella GmbH, along with some other investors that weren’t disclosed.
  • AEye’s existing investors include Continental, LG Electronics, the venture capital arm of Japanese auto supplier Aisin Seiki, and the venture capital arm of aircraft giant Airbus, Airbus Ventures.  
  • The deal values AEye at $2 billion. 

Now what

Assuming all goes according to plan, the deal is expected to close by the end of June. Investors in the SPAC will own 13% of the combined company (a decent percentage) after the deal closes. The PIPE investors will own 9%, and existing shareholders — all of whom plan to retain their shares — will own the remaining 79%. 

So why is CF Finance Acquisition III’s stock down today? It could be this simple: 13% of $2 billion is $260 million; as of noon, the SPAC’s market cap was about $329 million. Auto investors might be adjusting their holdings accordingly.