Newborn Acquisition Corp (NASDAQ:NBAC), a Shanghai-based SPAC (special purpose acquisition corp.) has snagged a very unique merger. This is going to potentially double the value of NBAC stock, as of Friday, Dec. 11, based on my calculations. I will walk you through how I came up with this value very carefully.
First, on Nov. 12, Newborn announced that it would do a SPAC reverse merger with a very unique San Diego-based electric charging company called Nuvve Corp. At its core, Nuvve is an electric vehicle (EV) charging company, with other unique patents.
Nuvve’s Value Proposition
Nuvve likes to call itself a “V2G” (vehicle to grid) technology company. It can create a virtual power plant (VPP) using fleets of charging electric vehicles along with buildings to bring electricity back to the grid.
This is a very interesting technology. It links multiple electric vehicle (EV) batteries into a VPP to provide bi-directional services to the electrical grid.
For example, Nuvve’s slide presentation shows that it has both a first-mover advantage and key patents with its V2G technology. Its business model includes revenue from both charging vehicles as well as software management sales. For example, it can sell excess power to the grid as well as earn a portion of savings from power not used by corporations.
But like I said, at its core, Nuvve is an EV charging company, sort of like ChargePoint (which is doing a reverse merger with another SPAC called Switchback Energy Acquisition Corp (NYSE:SBE). Another comparison is the public company Blink Charging Co. (NASDAQ:BLNK).
And those companies have very high valuations compared to Nuvve and Newborn, especially in relation to NBAC stock on a pro forma basis. Here is how that works out.
Newborn Acquisition Corp’s Pro Forma Value
On page 24 of the Newborn Acquisition Corp slide presentation, Nuvve lays out the economics of the merger transaction. For example, once the merger closes, there will be 20.2 million shares outstanding.
Therefore, on a pro forma merger basis, the market cap for NBAC stock is now $306 million (i.e., $15.15 share price as of Dec. 11 times 20.2 million shares, pro forma). Moreover, since the merger raises $70 million, the pro forma enterprise value will be $236 million (i.e., $306 million minus $70 million).
Nuvve shareholders will own 10.7 million shares or 53%. The SPAC investors in NBAC stock will own 31.3%. This is a relatively large share than most SPAC mergers, where the public usually owns 20 to 25% of the merged entity.
However, Nuvve gets to own an additional 4 million shares, or a total of 60.8% of the merged entity if they meet the conditions of an earn-out provision. That provision has a hurdle rate for 2021 revenue. If Nuvve management can get the company to produce more than $30 million in the calendar year 2021 they get the extra shares.
In fact, the company projects on page 26 of the slide presentation it will make $32.3 million in revenue in 2021. By 2022 Nuvve forecasts revenue almost 3 times that at $94.3 million.
This means that NBAC trades for just 7.87 times, assuming Nuvve makes 2021 revenue of at least $30 million. Given their earnout incentive and their internal forecast, there is every reason this will happen.
What NBAC Stock Is Worth
Now here is the value proposition. Its peers Blink and ChargePoint (SBC stock) trade at much higher valuations. For example, Blink stock trades at 47 times EV-to-revenue for 2021. This is based on its $889.6 million market value less $14.9 million in cash. Moreover, Seeking Alpha projects that its highest estimate for 2021 revenue is $18.25 million.
In fact, Nuvve’s slide presentation says that Blink’s EV-to-Sales ratio is just 22.1 times, on page 25. It also says that ChargePoint’s 2021 EV-to-revenue multiple is 23.3 times. Even though their forecast is much better than my forecast, in the sense that it assumes faster revenue growth, I will use their numbers. The average between the two is an EV-to-Sales multiple of 22.7 times.
Therefore, we have a situation where NBAC trades at 7.87 times EV-to-Sales for 2021 and its peers trade at almost three times that (2.88 times) at 22.7 times.
Moreover, when we add back the $70 million in cash, the implied real pro forma market value for NBAC stock is $750.7 million. This is seen by multiplying $236 million EV by 2.88 and adding to this $70 million. After dividing by 24.2 million shares (i.e., 20.2 million, plus the earn-out shares to Nuvve management), the target price is $31.02 per share.
So NBAC stock is worth $31.02, versus its price today of $15.15, or 104% higher, i.e., double its present value, as of Dec. 11. This stock is a serious Buy.
On the date of publication, Mark R. Hake has a long position in Switchback Energy Acquisition Corp (SBE).