Capital Calls: Hindsight comes quickly to SPAC projections

Capital Calls: Hindsight comes quickly to SPAC projections

A electric taxi car drives past a crossing in Shanghai, China March 9, 2021. REUTERS/Aly Song

Concise insights on global finance.

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2020 HINDSIGHT. Flattering projections from special-purpose acquisition companies, or SPACs, need to be taken with a large grain of salt. Lordstown Motors (RIDE.O) is the latest example. The company said on Tuesday that it needs more cash to ramp up production of electric trucks.

Lordstown said last August when it agreed to merge with the DiamondPeak SPAC and again later in the year that the $675 million it was raising should be sufficient to reach positive cash flow. Things haven’t gone smoothly. Equipment, shipping and third-party engineering services have cost more than forecast. The company estimated $90 million of SPAC proceeds would go on research and development. It’s now forecasting spending up to $290 million this year. Moreover, Lordstown said it would, at best, produce only half as many vehicles as previously indicated in 2021.

An official at the Securities and Exchange Commission warned in April that those involved in SPAC can’t assume they are immune from being sued if forecasts, which are used liberally in such deals, don’t pan out. Investors should discount projections heavily, if not ignore them altogether. (By Robert Cyran)

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