CIIG Merger Corporation (NASDAQ:CIIC) stock represents an investment into Arrival Group vehicles. CIIC stock is among the latest SPAC (special purpose acquisition company) deals in a string of many throughout 2020.
The financing method has been particularly popular for funding EVs. This is of course true for Arrival which will trade on the Nasdaq Composite under the ARVL ticker post-merger.
I believe there is a lot to like about this particular SPAC. Conversely, I believe many SPACs have been opportunistic and formed with little to no substance underpinning them. CIIC/Arrival seems to have a well thought out and realistic business.
So, do I think you should consider purchasing CIIC shares prior to the merger? Yes, I do. The shares have a very good shot at appreciating in price. Do I also believe that there will be a subsequent decrease in share price? Yes. Because ultimately the company has several years until production. Then customers will accept deliveries.
So, are markets likely to reward the company between IPO and production? Probably not. But there’s money to be made between now and sometime in Q1 of 2021.
CIIC Stock and the SPAC Spike
Essentially, I believe CIIC shares are a short-term gamble at making money in the lead up to the IPO. And that isn’t to cast any aspersion toward the company, the business, or the product. It is simply the pattern that SPACs follow.
SPACs with pending mergers (i.e., CIIC right now) have performed better than the resulting shares post-merger (i.e., ARVL in the future). SPACs have also performed better in recent years. This simply implies that investors can make money in the short term, but post-merger prices are more difficult to predict. SPAC funded IPOs have been value destroying whereas traditional IPOs have not.
I do believe CIIC shares will follow this trend of increasing in price up to the IPO. Then it should drop in the pre-production interim. Ultimately CIIC/ARVL has a good chance of being value creating and not value destroying.
Manufacturing
Arrival has a unique approach to manufacturing. The company is scaling down factory footprint in order to reduce capital expenditures and operational expenditures associated with larger factories.
It already has factory space in the U.K. dedicated to van manufacturing, and one in the U.S. dedicated to bus manufacturing. It will open what it calls microfactories, which have reduced costs and are much quicker to open. These factories will be dedicated to local product demand in order to reduce logistical prices.
The company has a 10,000 van pre-order from United Parcel Service (NYSE:UPS) with the possibility of another 10,000.
The difference here is that Arrival really has a strong strategy and manufacturing already sorted out. Many other SPACs simply use funding to then seek these things. It’s better to invest in companies with strategy, preorders, and manufacturing in place rather than to give your money to companies to go out and search for such things.
That’s why I believe CIIC/ARVL has a good chance of being a strong stock in the future. And I think it’s going to rise prior to the IPO based on the patterns SPACs show generally.
Time Your Purchase
Time a purchase of CIIC stock to the point that a definitive merger date has been announced. Movement occurs once the markets have a definitive merger date. The majority of SPACs rise significantly prior to the merger, and then they taper off and lose value. The general consensus is that the merger will occur in the first quarter of 2021.
So, once CIIG Merger announces that date, it’s a fairly safe bet that money will be there for the taking. Simply buy, watch your prices appreciate up to the merger, and then sell as soon as it shows any sign of a dip.
Conclusion
Again, I’ve parroted the idea that SPACs have, in aggregate, been value destroying time and time again. Investors have little reason to believe that this stock should be able to buck that trend immediately following the merger.
Do I like the company, or at least what it purports to do in the future? Yes. But there’s a fairly long timeline associated with its vehicles, and that makes CIIC stock a bit of an uncertain proposition.
Let’s assume that the company is delivering vehicles late 2021 or early 2022 as they’ve suggested. The merger, and thus the beginning of ARVL stock should happen in early 2021. But the company projects deliveries of their bus in Q4 2022 in their investor prospectus (page 19). The Arrival van and large van are expected to be delivered in Q3 of 2023. It has a good chance of delivering returns to shareholders then, too.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
