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Why Shares of Graf Industrial Are Soaring Today

By Lou Whiteman – Jul 2, 2020 at 12:59PM

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The SPAC is merging with a company making hardware for self-driving cars.

What happened

Shares of Graf Industrial (GRAF) gained 20% on Thursday after the special purpose acquisition company (SPAC) announced plans to merge with a maker of sensors for self-driving vehicles. The deal would move its merger partner, Velodyne Lidar, onto public markets, joining a host of other companies to use SPACs to go public in recent months.

So what

Velodyne Lidar said Thursday it would combine with Graf Industrial to create a company with a pro forma market capitalization of $1.8 billion. Current Velodyne shareholders, including Ford Motor (F -1.35%), Nikon (NINOY 0.89%), and Hyundai Mobis, would own about 80% of the combined company.

Post-deal, Graf Industrial would change its name to Velodyne Lidar and change its ticker symbol to "VLDR."

Cars with illustration of sensors around them assisting navigation.

Image source: Getty Images.

Velodyne manufactures laser-based systems that create a three-dimensional map of surrounding environments used in self-driving vehicles. Its tech is currently used by automakers including Ford and by Daimler's Mercedes-Benz unit.

The company claims more than 300 customers and has booked more than $500 million in revenue since inception. Velodyne said it projects revenue of about $100 million in 2020 but expects it to increase to $680 million in 2024.

Velodyne is the latest in a number of high-profile companies to go public via an SPAC merger in recent months. Virgin Galactic Holdings late last year merged with an SPAC formed by Social Capital Hedosophia.

In April, DraftKings went public via a merger with Diamond Eagle Acquisition, and electric-truck manufacturer Nikola went public earlier this month via a merger with VectolQ Acquisition.

Now what

Velodyne is capitalizing on a number of hot trends right now, including interest in SPACs and excitement about self-driving. The business has good credentials, some impressive backers and customers, and decent growth potential. But investors should be warned that these are still early days for self-driving tech, and Velodyne expects to be priced at a rich 18 times current-year sales.

There's reason to get excited about this company's prospects, but be careful not to get carried away.

Lou Whiteman owns shares of Ford. The Motley Fool owns shares of and recommends Virgin Galactic Holdings Inc. The Motley Fool has a disclosure policy.

Stocks Mentioned

Graf Industrial Corp. Stock Quote
Graf Industrial Corp.
Ford Motor Stock Quote
Ford Motor
$13.10 (-1.35%) $0.18
$9.05 (0.89%) $0.08

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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