Can the Merger of Tortoise with Hyliion Disrupt Class 8 trucks?

By Spyros Maris (University of Glasgow)



Overview of the deal


Acquirer: Tortoise Acquisition Corporation (“SHLL”)

Target: Hyliion

Estimated value: USD 325 million

Announcement date: 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 (exclusive strategic and financial advisor),

Cooley LLP and Wick Phillips LLP (Legal advisors)

The last two years we have seen an unprecedented rise of special purpose acquisition companies, or SPACs. So far in 2020, almost USD 12 billion have been raised from the IPOs of 39 SPACs. But what exactly is a Special Purpose Acquisition Company (SPAC)? SPACs are also known as “blank check companies”, they raise capital through an IPO and do not have existing business operations. They are formed with the purpose of effecting a merger, stock exchange, acquisition, reorganization or similar business combination with one or more businesses. SPACs have two years to complete an acquisition or they must return their funds to investors. SPACs offer a faster IPO process to companies looking to grasp the benefits of public markets, raise capital and bring on the expertise of the acquirer. Some post-merger returns have been stunning, including those of Nikola Motors (NKLA), Virgin Galactic (SPCE), and DraftKings (DKNG).


Hyliion will be merging with the SPAC named Tortoise Acquisition Corp. (NYSE: SHLL). Transaction includes an upsized USD 325 million fully committed PIPE (Private Investment in Public Equity). Pro-forma implied market capitalization of the combined company is estimated to be over USD 1.5 billion at the $10.00 per share PIPE subscription price and an estimated enterprise Value of USD 1.1 billion. Both companies’ Board of Directors unanimously approved the transaction which is expected to be completed at the end of Q3 2020. The newly combined company will remain on the New York Stock Exchange under the new ticker symbol (“HYLN”).


Company details (Tortoise)


Tortoise has a long-term investment approach across the entire energy value chain aimed at strategically decarbonizing commercial transportation in North America. After analyzing 200 companies, it has decided to invest and merge with Hyliion.


Company details: Tortoise Acquisition Corp.

Ticker Symbol: SHLL

Founded in 2018 and headquartered in Leawood, Kansas

President and CEO: Vince Cubbage

Market Cap: USD 626.56 million as of 10/07/2020

EV: USD 691.29 million

LTM EV/EBITDA: -0.97x


“Over the past 15 months since our IPO, we have evaluated more than 200 companies looking for the ideal opportunity where our expertise and capital could be the catalyst needed to unlock the full potential of a high-growth business.”
Vince Cubbage, CEO and President of Tortoise Acquisition Corp.


Company details (Hyliion)


Hyliion is developing two solutions to lower global CO2 emissions and provide a cleaner energy future. The Hybrid Electric, available now, and Hypertruck ERX (Electric Range Extender) which employs a compressed natural gas (CNG).

Its mission is to “Be the leading powertrain provider of electrified solutions for the commercial vehicle industry”.


Founded in 2015, headquartered in Austin, Texas.

CEO: Thomas Healy

EV/Revenue: 3.2x (estimate for 2022)

EV/EBITDA:137.2x (estimate for 2022)

“We are building solutions that are available today and address the immediate needs of today’s trucking fleets.”
Thomas Healy, CEO and founder of Hyliion


Projections and assumptions


Short-term consequences


Hyliion will have ~USD 520 million of cash to fund growth based on cash held in trust and USD 325 million in PIPE proceeds. Proceeds from the USD 325 million PIPE will be used to fully fund the commercialization and mass production of the company’s electrified powertrain solutions. Hyliion is planning on having customer trials of the Hypertruck ERX by next year. Hyliion has partnered with engineering (IAV, FEV) and deployment companies (Dana) to accelerate the delivery of ERX. The expertise of their support partners combined with the extra liquidity from the merger with Tortoise will be catalysts in Hyliion delivering and mass-producing the Hypertruck ERX.

The Hypertruck ERX is OEM (Original Equipment Manufacturer) compatible; this means that it supports existing service, support and operational infrastructure. Customers with major class 8 OEMs (Volvo, Kenworth, Freightliner) can add Hypertruck’s revolutionary technology. Therefore, not only customers looking to buy new trucks will consider Hyliion, but also includes customers who currently have an OEM class 8 truck may consider adding ERX’s technology.

The company’s board will include existing members from Hyliion and Tortoise Acquisition Corp. Founder and CEO of Hyliion, Thomas Healy will be joined by Tortoise Acquisition Corp.’s Vince Cubbage (CEO, President) and Stephen Pang (CFO) in a newly formed board of directors. Other directors are expected to be added at a later date.


Long Term Consequences


Table 1: Expected Financials of Hyliion

Hyliion is expected to become profitable by 2022. They currently have 20 Hybrids on the road accruing 2 million miles. In 2022, they are planning on mass producing the Hypertruck. The path to profitability seems promising. However, successful mass production of the Hypertruck ERX is a pre-requisite. Due to this, capital investment from Tortoise will aim at scaling its manufacturing capabilities and bring its net-negative emissions Hypertruck to market. The existing infrastructure of 729 R/CNG fueling stations implies that Hyliion does not need to invest in infrastructure like Tesla and Nikola need to build Electric and Hydrogen fueling stations respectively. On top of this, the proprietary technology in battery and advanced software solutions will ensure high-profit margins and ability to further invest to innovate.

Agility, one of the world’s leading logistics companies has pre-ordered 1,000 Hypertruck ERXs. This is a great opportunity for Hyliion to deliver the promising Hypertruck and establish itself as a market leader. Demand ahead of delivery is a positive sign and it ensures a surge in a cash-flow from pre-orders. Hyliion has an opportunity to capitalize on the USD 800 billion Total Addressable Market (TAM) of the 8 million Class 8 trucks in operation. A Class 8 truck is a vehicle with a Gross Vehicle Weight Rating (GVWR) exceeding 33,000 lb (14.969 kg). Approximately 944K are sold annually and Hyliion is aiming at gaining 2.2% of the market by 2024.

Image 1: Components of Hypertruck ERX


Risks & Uncertainties


The climate crisis has raised the need for decarbonization. This need has facilitated the rise alternative energy automakers. Hyliion is trying to capitalize on both the Class 8 regional and long-haul in the face of intense competition. Tesla (TSLA) recently surpassed Toyota (TM) and became the biggest automaker reaching a market capitalization of $286Bn as of 10/07/2020 and it is on the verge of joining the S&P 500. Tesla will be directly competing with Hyliion in the long-haul markets with its BEV truck expected in 2021. Moreover, there is competition from recently established companies such as Nikola Motors (NKLA). Toyota’s Mirai Fuel Cell EV is aiming at gaining market share in the regional market. The profitability, brand awareness and expertise of established traditional automakers such as Toyota and Volvo raise the need for Hyliion to over-deliver and beat expectations in order to gain market share.

Table 2: Competition in different markets

Another exogenous risk is determining which energy source will be the most dominant. Tesla’s semi-truck is Battery Electric Vehicle (BEV) while Nikola Motors and Toyota have focused on the Fuel Cell Electric Vehicles (FCEV) and their cars are powered by hydrogen. Essentially, this is a question of whether the R/CNG Electric technology will be able to be more cost-effective, efficient and effective. Through the RNG process, methane is captured from dairy farms or landfills and turned into a usable fuel as opposed to entering into the atmosphere. If Hyliion manages to successfully deliver the Hypertruck ERX it will create a competitive advantage and a unique selling proposition. Targeted customers including Amazon, UPS, DHL and Walmart have an incentive to order the Hypertruck.


Table 3: Comparison of the different technologies

In conclusion, Hyliion is developing an innovative disruptive technology which could be both cost-effective to its customers and reduce the emissions of greenhouse gases of the largest emitter which is transportation. Hyliion’s merger with Tortoise will accelerate the delivery the Hypertruck. However, shareholders and potential investors need to consider the high risk and uncertainties involved which will determine the success and continuity of the company.


“We're extremely excited to be able to offer both the lowest cost of ownership and the lowest emission solution, which is what's really important to these fleet owners,”
Thomas Healy, CEO and founder of Hyliion