Forest Road Acquisition Corp. II is led by former Disney executives and has entered into a definitive merger agreement withHyperloopTT. At a pre-money valuation, the combined company will be worth $600 million.
Hyperloop technology is a vacuum tube based system that moves people and goods by levitating capsule at airplane speeds. The speeds are supposed to be achieved by using passive magnetic levitation technology and a linear electric motor in a tube. The goal is to provide a safe form of transportation.
Hyperloop technology seems to be a pipe dream despite a lot of hype. Even if it were proven at scale, the services would be unprofitable for the company. The Boring Company is the most well-known advocate for hyperloop technology, but so far, all that they have to show is a tunnel in Las Vegas that ferries passengers in slow moving cars.
It is quite surprising that a company with no near-term or medium-term profitability is going to be brought to the public markets. The company will need to raise funds again in order to operate.
The combined company is expected to make $330 million from the deal. If the SPAC shareholders don't withdraw their money before the deal closes, that's as good as it gets. With redemption rates this year at an average of 81%, it is more likely that HyperloopTT will make out with around $70 million from the merger.
Even that projection could be positive. According to Michael Ohlrogge, an assistant professor of law at New York University and co-author of the report, "A Sober Look at SPACs," the banks working on the deal will get about $20 million in transaction fees. It would take less than $70 million to have a meaningful impact on scaling hyperloop technology.
According to Ohlrogge, there is no PIPE in the deal. They are hoping that they will be able to find some unsophisticated investors who will fail to redeem their shares and give them $10 per share for equity worth very little.
According to Ohlrogge, the ability to cancel the merger can be used to prevent the target from giving away millions of shares to the sponsor and banks. The SPAC needs to complete the deal before March 23, 2023, so a decision needs to be made quickly.
The deals are close to being announced and possibly hope to close by then, according to Ohlrogge.
Forest Road Acquisition Corp. II is trying to close a deal before the deadline. It will have to give money back to investors if it doesn't. Last year Forest Road brought The Beachbody Company public, which ended up being a disaster for long term shareholders.
Beachbody had revenue of $166 million and a net loss of $33.9 million in the third quarter. The company's stock is trading at a low of 0.78
What is the goal of the company?
A full scale test track, a hyperloop insurance framework model, and safety and certification guidelines have been developed by the company.
Hyperloop system projects are being worked on by the European Commission and the U.S. Department of Transportation. In the US, HyperloopTT is working on a feasibility study in the Great Lakes region and in Germany, they are working with Hamburger Hafen and Logistik AG. The company is looking for a site in Canada to explore a three-mile passenger system and an R&D and experience center.
An asset-light technology licensing business model can lead to three revenue streams, including a one-time license fee during system construction and annual license fees throughout the life of a system.
It’s pretty clear that HyperloopTT and any of its derivatives have a long way to go before they can make a commercially viable product. Our best guess is another 10 years of R&D at least before we can even begin to think of hyperloop technology as more than vaporware. Which is what makes a SPAC deal today so confounding, especially when the appetite for such deals has waned substantially, particularly for pre-revenue companies.
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