CARY, N.C. -

If you’ve heard the term “SPAC” a lot in the used-car market this year, you’re not alone.  

The term refers to a “special purpose acquisition company,” and at least two well-known used-car players have merged or announced plans to merge with publicly traded SPACs as a means of going public this year.

They're taking that route instead of going through a traditional initial public offering.    

“If you’ve been paying any attention to the public markets this year, SPACs have been the hottest thing to take companies public,” Steve Greenfield, who is CEO and founder of Automotive Ventures, said Wednesday during a presentation for the all-digital National Remarketing Conference.

It has been a record year for SPACs taking companies public, Greenfield said. And that includes moves in automotive and the used-car segment, in particular.

In late June, vehicle ecommerce platform Shift announced plans to go public in the third quarter through a merger with Insurance Acquisition Corp., a publicly traded SPAC.

That merger became official in October, and Shift became a public company with Class A common stock starting to trade on Nasdaq Oct. 15.

And then on Oct. 22, CarLotz and Acamar Partners Acquisition Corp., also a publicly traded SPAC, announced they had agreed to a definitive business combination through which the used-car consignment and trademarked “Retail Remarketing” platform would become publicly traded.

That combination is expected to close in early in the first quarter of 2021.

So why go the SPAC route, versus the traditional IPO?

For one, it can mean greater access to capital, CarLotz co-founder and chief executive officer Michael Bor said in an October interview.

“A traditional IPO, doesn't really give you a lot of capital. It gives you liquidity and the ability to go public, but it doesn’t really bring in a lot of capital,” Bor said.

“For us, we laid out a plan that is a fairly dramatic growth trajectory enhancement from where we have been and we needed capital to get that done. And a SPAC process gave us that amount of capital to get the plan done, and it also gave us access to the impressive team at Acamar,” he said.

“And so, between it begin a really efficient and transparent process, which we love, it giving us more capital and it giving us access to these investment professionals, it felt like a no-brainer.”

Likewise, at Shift, a top priority was to “capitalize the company for growth,” said co-CEO Toby Russell.

He pointed to Shift’s peers like Carvana and Vroom, which had more capital and thus the ability to use marketing to fuel growth. Carvana went public through an IPO in 2017, while Vroom had its own IPO in June of this year.

Russell said that Shift had gotten to the point where actual user feedback was strong, but overall awareness was not.

“Our unaided brand awareness is actually relatively low,” he said in an October interview. “And so, we said, ‘Hey, what we need to do is, we need to capitalize this company.’ Because we’ve got the right products. People want it. It’s a tremendous market.

“We need to capitalize this company to be able to grow meaningfully.”

With used retail being a capital-intensive busines, going public was the ultimate “end game” to obtain the capital needed to continue that growth at Shift.

And going pubic through a SPAC merger seemed a less risky move than an IPO, given the market fluctuations that can happen (and have happened) during a pandemic.

Those fluctuations can impact pricing in the public markets and potentially disrupt the success of an IPO.

“Why we chose the SPAC was (that) it allowed us to de-risk that process quite a bit in the midst of a COVID pandemic,” Russell said.

“Why? First it involves that concept of a private fundraise. And second, it involves a company that’s already public and already trading, merging. So, you’re less dependent on the outcomes of your process on where the market price happens to be at that point,” he said.

“We didn’t know if there’d be another massive dislocation in the market. So, what we wanted to do was to set up a process where we could capitalize the company and keep moving forward and growing, kind of without huge dependence on where public markets were at that moment”, given the “huge dislocation” that occurred in April in the early days of the pandemic, Russell explained.

Shift decided it could not afford to risk having that process “derailed” by COVID-19.

“We’ve got to find a way to set up the capitalization and set up a process that is low likelihood to get derailed by market prices moving down,” Russell said of the company’s thought process.

Often with IPOs, he said, “you’ve seen in the history, lots of ideas get derailed by market prices moving.”

Speaking to the growing popularity of SPAC mergers, Bor, the CarLotz CEO, said: “For whatever reason, it seems to be popular in the automotive sector. It’s definitely popular generally. And it has gotten very, very popular over the last year or year and a half.  There are a number of reasons. It really is a more efficient way to go through the public route.

“In a traditional-way IPO, you and your advisors pick a price. And then typically, it trades up 100%, and that 100% is really like value that the company is giving away to some investors that know the advisors you’re working with and get kind of a sweet deal. This is just a more transparent and fair, direct route to an IPO.”

And with Acamar already a public company, CarLotz’s move essentially amounts to an M&A transaction

“Especially during COVID, it’s also not a great time to be running around the country doing road shows,” Bor said.

Speaking of which, going public during a pandemic is challenging proposition, regardless of the method one chooses to get there.

But it’s not without some silver linings, as Bor and Russell both found during their respective companies’ processes.

The absence of in-person interactions was challenging, Bor said, but the absence of travel has its bonuses.

“The upside is dramatic. Of all the meetings we have been on in the last several weeks, as we were raising the PIPE and getting the IPO done, we have not had to run through airports, miss slights, go through security at buildings in Manhattan,” Bor said. “I have not left this chair for this whole process.”

The “PIPE” Bor mentioned refers to a private investment in public equity.

That part of the SPAC merger process, Russell said, involves tons of meetings with investors.

“I think it was something like 16-hour days for two weeks straight … and being able to do that kind of investor interaction typically would involve flying around and doing lots of meetings. That would be a typical road-show kind of experience,” Russell said.

“Because of the pandemic, there was no road involved. It was all online. And so, I would actually say that I was pleasantly surprised by the fact that rather than taking three or four weeks of roadshow, within about a week and a half, two weeks, we just did (the process),” he said.

While the travel headaches were eliminated and the process was more efficient, it certainly does not mean it was easy.

“I mean, it was brutal.  Like back-to-back 6 a.m., because we’re West Coast, sometimes 5:30 am, all the way up to like 8 p.m., meetings all the way through the day,” Russell said. “But we were able to do that in like two weeks instead of four, because of the video experience. And that surprised me, that you could go out and do business in a very different way, and adapt.

“At first, we thought it was going to be a massive liability. Then we realized … it had enabled a lot of reduction in travel costs, reduction in wasted time hanging out in taxis and office lobbies, etc., and allowed us to really connect with people at a high rate and get a lot of work done fast.”

An efficient and effective means to raise capital. That certainly would explain the popularity.