Merger Target: Luminar
Market Capitalization: $1.02 Billion
On August 24, Luminar, an automotive lidar technology company, agreed to a reverse merger with Gores Metropoulos (NASDAQ:GMHI), a SPAC stock. Lidar sensors use lasers to make 3-D representations of objects. Luminar is used by 7 of the top 1o global automakers for auto self-driving technology. Also, it claims to have 50 partner companies, including Volvo which will use Luminar’s products in its 2022 vehicles.
Gores Metropolous will contribute $400 million in cash to the deal and a number of high rollers including Peter Thiel, who first funded Google, will supply an additional $170 million. The company claims the deal will have an estimated enterprise value (EV) of $2.9 billion, based on a projected market value of $3.4 billion. The stock ticker will change to “LAZR.”
Interestingly though, as of today the stock has a market cap of just $1.06 billion. So if the transaction promoter’s expectations come to pass, the stock could more than double.
However starting on page 24 of Luminar’s slide presentation, the financials show EBITDA losses up until the end of 2024. In 2024 it will make $124 million, more than doubling to $365 million by the end of 2025.
That puts the expected $2.9 billion of EV after the merger closes (assuming the stock rises over 100%), at 8 times the EBITDA of five years in the future. Assuming at least a 15% discount rate, the present value of the 2025 EBITDA is actually just half of that (49.7%). So the real EV-to-EBITDA number is actually twice the stated number, or 16 times EBITDA. That’s a little high.
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Nevertheless, today’s valuation of $1.06 billion for GMHI stock is too low. It implies a paltry $500 million EV and just 1.36 times 2025 EBITDA. Even after discounting it is about 2.7 times. Therefore I believe a more appropriate price is at least twice today’s pricing. Expect to see GMHI stock (and LAZR post-merger) to double upon closing.
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