• KCL M&A Society

Hyliion and Tortoise Acquisition Corp. 



By Abhinav Vitta, Head of Industrials at The KCL Mergers & Acquisitions Society


Deal introduction  

Acquirer: Tortoise Acquisition Corporation (“SHLL”)

Target: Hyliion – trading as “HYLN”

Date of Announcement: 19/06/2020 

Acquirer Advisors: Vinson & Elkins L.L.P (Legal), Barclays Capital Inc (M&A Advisor) 

Barclays Capital Inc. and Goldman Sachs & Co. LLC serve as joint-placement agents on the PIPE offering

Target Advisors: Marathon Capital (strategic and financial advisor), Wick Phillips LLP and Cooley LLP (Legal advisors)


Having passed a vote in a virtual meeting on the 28th September, the shareholders of special purpose acquisition company (SPAC, also known as blank cheque companies) Tortoise Acquisitions Corp. completed the merger with Hyliion valuing the firm at approximately 7.2 billion USD. The electric vehicle market has caught the attention of investors worldwide with Tesla, Nio and Nikola frequently being covered in the financial press and also posting large gains on their stocks for the year. The merger is yet another reminder of the bets that investors are placing on the future of the electric vehicle market.


SPACs offer a way for private companies to go public through a merger with a shell company avoiding the time-consuming, heavily regulated and at times strenuous process of an IPO. The SPAC has been favoured by many with the backdrop of market volatility during 2020 making the IPO process much more difficult. SPACs raise funds through an IPO from investors, typically for 24 months, with the ambition of pursuing an acquisition, merger, stock exchange or a similar business combination. The emergence of blank cheque companies in 2020 has been notable with 51.3 billion USD being raised YTD which is more than that has been raised in the past ten years combined. Notable SPAC IPOs this year include Bill Ackman’s Pershing Square IPO raising a record 4 billion USD and Richard Branson’s SPAC IPO for Virgin Galactic. 


Tortoise Acquisition Corporation’s acquisition of Hyliion adds to the list of EV SPAC transactions completed in 2020 including Nikola Motors and DiamondPeak Holdings Corporation’s acquisition of Lordstown Motors among others.


Company Details – Hyliion

Founded: 2015

CEO: Thomas Healy

HQ: Cedar Park, Austin, Texas, USA

Ticker: HYLN

Share Price at the time of writing: $24.31

Market Cap at the time of writing: 3.741B USD


Hyliion is a company founded in 2015 that specialises in producing electrified and hybrid powertrain solutions for class 8 commercial vehicles (the largest specification of HGVs that weigh over 14,969KG). The company has the ambition to be the leading electrified powertrain solution provider for the commercial transportation industry. It currently offers two main products. The firm’s hybrid powertrain, which can be installed to many class 8 vehicles, is on sale and is designed to lower emissions and fuel costs and offer a better driving experience for large diesel trucks. Hyliion also plans to offer the Hypertruck ERX (electric range extender) by 2022 which has an electric powertrain that is accompanied by compressed natural gas (CNG) to power the generator charging the batteries. 


Company Details – Tortoise Acquisition Corp.

Founded: 2019

CEO: Vincent Cubbage

HQ: Leawood, Kansas, USA

Ticker: SHLL


Tortoise Acquisition Corp. was set up as a SPAC to pursue a merger or acquisition with a target company. It was a shell company set up with an ambition to acquire a business within the “broad energy transition or sustainability area” to deliver solutions that will enable companies to reduce their emission reduction objectives. Tortoise analysed over 200 companies before deciding to merge with Hyliion.


Deal Motivations 

In 2017, founder Thomas Healy was selected by Forbes for the Forbes Under 30 list. At this time, Hyliion was still very much in the early stages of the development of its hybrid electric powertrain. Healy’s innovation caught the attention of the automotive parts giant Dana Inc who were intrigued enough to make an equity investment into Hyliion. Along with an injection of capital, Dana Inc brought customers such as Volvo and Navistar.  


What is more notable is that Hyliion has taken a markedly different approach to the electrification of HGVs when compared to their larger competitors. Healy believed that there was no need to redesign the HGV from scratch but instead adapt the current successful model that customers are accustomed to and love. Hyliion has gone on to develop its proprietary technology that is compatible with trucks around the world. After adding the support and network of Dana Inc to the equation, Tortoise Acquisition Corporation were convinced that this was the perfect target.


Short Term Consequences

The merger with Tortoise Acquisition Corp. provides Healy and his company with over half a billion USD to develop and commercialise its products. The Hypertruck ERX is expected to be available for customer trials 2021 and ready for large scale shipments in 2022. Hyliion has established connections with manufacturer Dana Inc, data analysis firm Sensata Technologies and engineering companies IAV and FEV to accelerate the commercialisation of the vehicles. The additional liquidity will support this process. Vincent Cubbage and Stephen Pang will both be joining the company’s Board of Directors, but Thomas Healy will retain his position as the CEO of Hyliion.


Long Term

Much of the gain for Tortoise’s shareholders is within the long term. Hyliion is forecasting total revenue of 344 million USD in 2022, 1.019 billion USD in 2023 and 2.091 billion USD in 2024. According to the projections, this translates to EBITDA of 8 million USD in 2022 and 602 million USD by 2024. Hyliion have announced a pre-order of 1,000 Hypertruck ERXs from Agility, a global logistics company. The pre-orders provide cashflow but also valuable publicity to the rest of the market. 


The journey to sustainable profitability seems favourable. Hyliion’s technology proposal relies on the HGV compatible CNG infrastructure which is well established when compared to the existing hydrogen or electric network allowing Hyliion to bypass one of the largest hurdles to the electric vehicle scalability problem; the lack of compatible infrastructure. It is estimated that 12 billion USD is required to bring the hydrogen network on par with the current CNG network. According to Hyliion, using an onboard CNG generator is 32% less expensive than purchasing electricity from the grid. Furthermore, CNG can be sourced sustainably (using biogas) and hence, the opportunity for carbon negative logistics arises.


Source: https://investors.hyliion.com/overview/default.aspx


Companies that are facing the task of reducing their emissions over the next few years are confronted with a large expenditure on new trucks. Hyliion provides technology that is compatible with older vehicles dramatically expanding the size of its target market which it estimates to be at approximately 800 billion USD and so provides companies with the opportunity to make adjustments to its existing fleet as opposed to refreshing their entire fleet. Moreover, Hyliion’s technology is designed to have a greater range and payload capacity compared to Nikola and Tesla while matching Nikola’s charge time and beating Tesla’s. 


Source: https://investors.hyliion.com/overview/default.aspx


Consequently, Hyliion has all of the components in place to capture a large market share of the EV market, and the pre-order from Agility provides the opportunity to exert its dominance as the market leader.


Risks/uncertainties 

Hyliion, like all of its competitors, is a business that was born out of the need for decarbonisation in the petrol and diesel dominated car industry. However, as for any of the promising EV companies, their success depends on their ability to produce technology that is viable, practical but also proprietary. Earlier, this year Nikola Motors came under the scrutiny of Hindenburg Research who claimed Nikola Motors had made a series of misleading statements about its vehicles and its technology. As a result, Hyliion, and other EV start-ups, are likely to be under pressure to prove to investors that their technology is worthwhile. If Hyliion is able to deliver on what looks like a very encouraging business plan and meet investors’ expectations with their technology, the result is likely to be outstanding.


It is also important to remember that the electric HGV market is hotly contested with Tesla and Nikola Motors both being direct competitors. Tesla has plans to release a BEV (battery electric vehicle) truck expected in 2021. However, established automobile producers such as Toyota are also aiming to capture market share with the Mirai Fuel Cell EV (hydrogen fuel cell).


Source: https://investors.hyliion.com/overview/default.aspx


To conclude, Hyliion is in a strong position having ownership over its technology and also the necessary suppliers and customer connections in place but there is still a long way to go. Hyliion has earmarked UPS, Amazon and DHL among many others as target customers. It is therefore imperative that the company performs well in the early stages of its product launch to present a unique selling proposition and attract the high-profile customers.


Comparable Companies/Precedent Transactions

Company: Nikola Motors

Founded: 2014

CEO: Mark Russel

HQ: Phoenix, Arizona, USA

Ticker: NKLA

Share Price at the time of writing: $20.94

Market Cap at the time of writing: 7.94B USD


One of Hyliion’s main competitors is Nikola Motors. They are a company with a similar mission to “transform the transportation industry” and have been operating since 2014 when CEO Trevor Milton set the firm up in Salt Lake City, Utah. Similar to Hyliion, the company decided to pursue a merger with a SPAC in 2020 merging with VectoIQ which is headed by former General Motors Vice Chairman Stephen Girsky. 


Nikola Motors produce battery-electric and hydrogen-electric vehicles that are aimed at the long-distance HGV market placing them in the same market space as Hyliion. In the same way that Hyliion markets its CNG electric vehicle as its unique proposition, Nikola markets its hydrogen-electric vehicles with ambitions to create a large hydrogen-based infrastructure around the world. Hydrogen fuel cell technology has been available for some time but is still yet to become mainstream for a number of reasons including the lack of infrastructure, the flammability of hydrogen, transportation and containment and costs. However, a hydrogen fuel cell combines with oxygen in the air to produce electricity producing water vapour as the only by product. The company has plans to roll out the Nikola Tre Class 8 BEV in 2021 followed by the Nikola Two Class 8 FCEV in 2023. Nikola have said that they have 10B+ USD worth of pre-orders in place for their FCEV (fuel cell electric vehicle) “with robust demand for newly introduced BEV truck”.


Nikola Motors has also planned to target the RCV (refuse collection vehicle) market by producing the Nikola Refuse. The vehicle will use similar technology to the Nikola Tre Class 8 BEV and has already received an order for 2,500 vehicles from Republic Services, the second-largest recycling and waste provider in the USA. 


Furthermore, Nikola have also established connections with industry heavyweights such as CNH Industrial, IVECO (leaders in the development and manufacturing of commercial vehicles) and BOSCH (global supplier of technology and automotive services) as well as Ryder (largest truck leasing company in the USA).


Evidently, the two companies have several similarities. However, there are significant differences between Nikola and Hyliion. The first factor to consider is the technology. Hindenburg Research’s recent reports have revealed that Nikola Motors misled investors and other stakeholders by publishing a video in where the Nikola One FCEV truck is in motion with the inference that it was moving under its own power. The vehicle was in fact rolling down a long-sloped road. Another claim in the report is that Nikola misrepresented its efforts to develop a new battery technology. In conclusion, Nikola seems to still be some way away from having its functional proprietary technology while Hyliion is in a much better position.

Second, Hyliion places itself in a much better position than Nikola by utilising the R/CNG and its network. The RNG is delivered through the existing nationwide infrastructure as natural gas is. CEO Thomas Healy claims “renewable natural gas is another megatrend”. RNG is a safer and faster way of refuelling when compared to class 8 diesel and hydrogen. Finally, the Hypertruck ERX that utilises RNG will have a much larger range of over 1300 miles when compared to the FCEV or BEV announced by Nikola Motors which can achieve a range of 500-750 miles. Hypertruck ERX is expected to release 2 years before its competitor the Nikola Two Class 8 FCEV. 


Finally, there is a significant difference in the business model of both of the firms. As aforementioned, Hyliion aims to sell powertrain solutions to existing truck makers. Nikola aims to rebuild the truck from bottom up, and this is perhaps the largest difference between the two truck manufacturers. We are still yet to see who will come out on top.


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