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M&A Deals

Archer takes aim: Atlas Crest Merger

Last month, Atlas Crest Investment Corp., chaired by founder of Moelis & Company Ken Moelis, agreed to merge with electric aircraft company Archer Aviation, in a deal that values the company at around $3.8bn. Despite Archer having not generated any revenues or created a commercially viable product as of yet, this deal marks yet another blank cheque merger in the electric vehicles market — a trend that is ubiquitous in the current markets.

Archer Aviation

Archer Aviation is aiming to commercialise the use of urban air taxis, as a long-term solution to traffic congestion in major cities. Without a commercially viable product to market, Archer plans to unveil its prototype electric aircraft later this year, with the vehicle expected to travel distances of up to 60 miles at 150mph. It is undeniable the issues that major cities face, with travel congestion and long commutes to work a significant strain on the labour-leisure trade-off and a productivity drain for businesses operating in these densely populated urban areas. Archer aims to remedy the long-term problems of “urban overloading”, with an electric vertical take-off and landing vehicle (eVTOL). Archer’s aim to bring the product to market at an accessible price for end users is to be supported by its recently announced partnership with Fiat Chrysler Automobiles. Fiat Chrysler has agreed to give Archer access to the carmaker’s supply chain, in a bid to drive efficiency and push down the cost of producing electric aircraft at scale. The 2021 prototype is set to be the first pitstop on the transition to volume manufacturing in 2023.

Blank cheque trend

2020 was a breakthrough year for the re-emergence of special purpose acquisition companies and this has changed the route through which tech start-ups have gained capital. Since the start of 2020, investors have poured over $130bn into SPACs traded on exchanges, enabling private companies to go public and raise significant amounts of capital without an IPO. Nine automotive tech groups that listed via a blank cheque company last year amassed revenues of just $139m between them for the 2020 calendar year. This shows the speculative nature of the SPAC boom in tech, with fast-growing companies clearly targeted for their predicted revenue forecasts rather than historical performance in the market. Together, those same nine automotive tech groups predict revenues of over $26bn by 2024. This trend is evident in the urban air mobility market too, with Archer’s competitor Blade announcing it would go public via Experience Investment, whilst Joby Aviation are another player in the market that are in talks to go public. With automotive tech start-ups amassing a market capitalisation of nearly $60bn, there is clear investor and consumer interest in avoiding traffic and redesigning the urban transport infrastructure via the skies, and these blank cheque companies are finding opportunities off the back of this interest.

A key differentiator for Archer Aviation is the institutional support it has received before the release of its prototype. United Airlines has already placed an order worth $1bn, and under the terms of the agreement United Airlines will contribute its expertise in airspace management to assist Archer’s development of battery-powered, short-haul aircraft, before acquiring a fleet of 200 electric aircrafts to provide customers a “quick, economical and low-carbon way to get to United’s hub airports and commute in dense urban environments within the next five years”. Should Archer be able to capture the market, then valuations based on predictions of future revenues can appear cheap, turning speculative bets into successful long-term investments. With the support that Archer has received from United Airlines, investors clearly believe that Archer is a worthwhile investment as a start-up, with the stock of Atlas Crest Investment Corp. surging over 30% since its IPO. With electric vehicle companies set for intense competition as the market takes shape, with market research firm IDTechEx estimating that electric vehicles will constitute up to 80% of the global market by 2040, investors are picking Archer Aviation as a winner and one to capture market share in electric aircrafts.

Urban air mobility market

There are still many obstacles for the urban air mobility market moving forward and reports by McKinsey and backed by NASA suggest there will be a limited market for this by 2030. The sheer infrastructure needed to support a system of unscheduled and on-demand ridesharing air taxis would necessitate significant investment costs. With the service based around consumers being able to call eVTOLs to their desired pick-up locations and specify drop-off destinations at rooftops throughout a given city, it would require a large density of “vertistops” to create a “door-to-door” service, as well as installing charging and service stations within a given distance.

In a world where 100% office-based working may be a dying trend, with a potential shift to a hybrid economy where workers have the ability or option to work from an office or from their desk at home, the currently universal remote working and whether it remains in some capacity post-covid may be pivotal in determining the benefits of urban air travel. Covid-induced remote working has undoubtedly reduced travel congestion, but it remains to be seen whether the current, forced remote working environment will stimulate a hybrid working arrangement in the long-term, as employers evaluate the benefits or losses from working from home. 

Public acceptance of such technology is absolutely vital in the electric vehicles market. According to the McKinsey report, 25% of 2,500 surveyed consumers reported they would be comfortable with unmanned aerial technology, matched by 25% who said they would not use such a service were it to become widely available. This suggests that Archer not only have to build a product that is commercially viable in the cost-pricing sense, but also a product which instill confidence in the mass market about its safety, limited noise externalities, and privacy it provides for consumers. The same report stresses that there is definite potential to market the product to high net worth individuals and businesses in particularly dense urban areas — Manhattan or London, for example — for travelling to suburbs, in order to avoid the congestion of the inner city. By serving a certain sub-strata of the population, Archer Aviation may then be able to scale up within an infrastructure framework that gradually builds up around it over time. Archer Aviation aims to provide a long-term, aerial solution to traffic congestion, and Atlas Crest Investment Corp. has provided the proverbial wings for take-off.

Sources

https://hub.united.com/2021-02-10-united-to-work-with-archer-aviation-to-accelerate-production-of-advanced-short-haul-electric-aircraft-2650426294.html

https://www.nasa.gov/sites/default/files/atoms/files/uam-market-study-executive-summary-v2.pdf

https://techcrunch.com/2021/02/10/archer-lands-1-1b-order-from-united-airlines-and-a-spac-deal

https://www.ft.com/content/b2e63918-fca1-4ca6-b5bf-5e72a67133a6

https://www.ft.com/content/688d8472-c404-42d6-88b7-fbd475e50f7c

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