2020 has been the year of the special purpose acquisition company (SPAC). As of this writing, there have been 138 SPAC deals launched this year, and these SPACs have raised, collectively, more than $53 billion. The previous record year for SPACs was just 59 deals raising $14 billion in 2019, so this is a breakthrough time for the SPACs. Thus, it’s far more than just the flashy electric vehicle (EV) SPACs; there’s a huge pipeline of new companies going public. And that’s where Gores Metropoulos (NASDAQ:GMHI) stock fits in.
In August, Gores Metropoulos announced that it will be acquiring Luminar Technologies. Once the deal is completed, the new company will trade under the ticker symbol “LAZR.” As you might deduce from the ticker, Luminar is an autonomous driving play focused on light detection and ranging (lidar). As vehicle technology is a favored sector of the market right now, Gores Metropoulos/Luminar could be an attractive investment in coming months.
Gores: Not Its First Deal
As Gores is a long-time SPAC sponsor, it’s worth looking at how its past deals have fared. The original Gores SPAC bought Hostess Brands (NASDAQ:TWNK) out of bankruptcy and sought to turn it around. Hostess makes the iconic Twinkies brand of snack food. TWNK stock trades for $13 now, up moderately from its original $10 offering price. The second Gores SPAC turned into Verra Mobility (NASDAQ:VRRM), whose stock still trades at $10 now, barely changed from the opening SPAC price.
The third Gores SPAC, PAE (NASDAQ:PAE) launched earlier this year, and now trades at $9, slightly down from its deal price. We can detect a broader pattern from these purchases. Gores doesn’t buy the sorts of super-flashy and trendy companies that many SPACs have gotten into in 2020. And Gores’ purchases have performed alright. There haven’t huge winners, but it has also avoided catastrophic losers as well.
To be clear, the outcome of each Gores-led SPAC is separate — they’re fully independent companies despite being backed by the same sponsor. Still, the backstory around Gores should give you some perspective. Gores buys solid firms, but not necessarily stuff that is going to shoot up overnight.
Luminar: Gores’ Latest Venture
At first, Luminar might seem like a really hot company, like the EV SPACs. Upon closer inspection, however, Luminar looks like a more normal automotive components sort of business. And let’s be clear, that’s not necessarily a bad thing. Many of 2020’s SPACs are going to end up being busts, as they are speculative businesses with little in the way of revenues or a proven business model.
Luminar by contrast has already established itself as one of the clear leaders in its field. Luminar has a ton of credibility behind it. Want a superstar investor? Peter Thiel was involved in Luminar early. Luminar has piled up more than 80 patents already. And Volvo (OTCMKTS:VLVLY) is lined up as a key customer. That bodes well for GMHI stock.
Why Luminar Is Better
According to Luminar’s investor presentation, the company states that it is well ahead of the competition in autonomous driving technology. Competitors use systems based on cameras, radar, or lidar. Luminar uses a top-notch laser detection system based on the speed of light. In the past, however, each of these three systems had some sort of shortcoming.
Cameras don’t work in bad weather and are terrible at assembling 3D data vital for dealing with pedestrians and other moving hazards. Radar works in bad weather but struggles with 3D data as well. Meanwhile, rival lidar systems can do precise 3D imagine but can fail in bad weather. According to Luminar, it has the only system that can handle all these challenges simultaneously. And, thanks to patent protection, it should be able to sustain a substantial lead over rivals as the technology becomes more commercialized.
GMHI Stock Verdict
I doubt there’s a huge rush to get into Gores Metropoulos prior to the SPAC acquisition for Luminar closing. This is not likely to be a stock that goes exponential in the near term. That said, automotive lidar will be a large and growing market in coming years. There’s a lot fundamentally to like about this offering.
From the looks of it, Luminar has one of the most advanced and patent-protected offerings in the space. In its presentation, it makes a compelling case for its technology and leadership position in the market.
And to that point, Gores’ involvement is a plus. As I demonstrated, they’ve already done a ton of deals in the SPAC space. They haven’t foisted any dubious companies such as Nikola (NASDAQ:NKLA) on the public either; so far, Gores has done alright in buying companies with respectable operations. As such, if you want exposure to automotive technology, give GMHI stock a look, particularly after the deal closes over the next month.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.