Self-driving technology start-up Aurora Innovation said on July 15 that it has agreed to go public via a merger with Reinvent Technology Partners Y (NASDAQ:RTPY), a special-purpose acquisition company (SPAC), in a deal that values the combined company at $13 billion.
Investors who have been following the self-driving space have probably had Aurora on their radar screens for a while now. The company's partnerships with Uber Technologies (NYSE:UBER) and heavy-truck makers Volvo AB (OTC:VLVL.Y)(OTC:VOLV.F) and PACCAR (NASDAQ:PCAR) -- all of which are investing in this deal -- have helped it stand out in a crowded field.
But should we invest in this deal? Let's take a closer look.
Taking Aurora Innovation public
This deal follows the pattern set by other SPAC deals we've seen over the last couple of years. The SPAC itself brings the cash raised by its IPO, along with a fund called a PIPE (private investment in public equity) that includes several third-party investors.
Here are the key points of the deal.
- The deal values Aurora Innovation (as it is today, pre-merger) at $11 billion.
- The post-merger company, which will retain the Aurora Innovation name, will have about $2.5 billion in cash, including nearly $2 billion in cash from this deal (before expenses).
- Reinvest Technology Partners Y will contribute $977.5 million in cash from its trust account.
- The PIPE will contribute another $1 billion, from investors including Baillie Gifford, Sequoia Capital, and funds and accounts advised by T. Rowe Price and Fidelity, as well as PACCAR, Uber, and Volvo AB.
- The "lock-up" period -- the time that certain key officers of Aurora and the SPAC will have to wait before they can sell their shares -- is four years, which is unusually long.
- Existing Aurora stockholders will own about 84% of the combined company.
I see two takeaways from all that: First, as SPAC deals go this is a fairly big one; and second, the long lock-up period seems intended to show prospective investors that the technology is viable (or, to put it another way, that this isn't just a get-rich-quick deal for the participants).
What is Aurora Innovation?
Aurora's product, called the Aurora Driver, is being developed as a Level 4 autonomous driving system that can work with a variety of vehicles, from passenger sedans to tractor-trailers. (A Level 4 system is fully self-driving, but only under some conditions -- for instance, when operating in a carefully mapped area.) Aurora is aiming to begin deploying its system in 2023. The company, founded in 2017, has about 1,600 employees.
As I mentioned above, Aurora has some important partnerships: PACCAR, maker of Peterbilt and Kenworth heavy trucks; Volvo AB, maker of Volvo heavy trucks (but not Volvo Cars, which is a separate company); Uber, which sold its self-driving unit to Aurora last year; and Toyota (NYSE:TM), in a deal announced in February.
Aurora's co-founders are self-driving heavyweights: CEO Chris Urmson was an early leader of the original Google Self-Driving Car Project, which became Waymo; chief product officer Sterling Anderson once ran Tesla's Autopilot program; and CTO Drew Bagnell is an associate professor at Carnegie Mellon University's vaunted Robotics Institute, where many leaders in this space were educated.
What is Reinvent Technology Partners Y?
Reinvent Technology Partners is a group led by executives including LinkedIn co-founder Reid Hoffman and Zynga founder Mark Pincus. The group, which describes itself as long-term investors, has three SPACs, including one currently in the process of taking flying-taxi start-up Joby Aviation public.
Is the stock a buy?
Aurora's technology is generally considered quite good, if not (yet) best in class. Analytics firm Guidehouse Insights, which tracks these things, rates Aurora as a "contender" in the self-driving space, along with heavyweights like Mobileye and General Motors' Cruise -- but a notch behind the "leaders," including Waymo, Nvidia, and Argo AI.
My take is that the post-merger valuation of $13 billion might be ambitious, but it's not excessive given some of the other valuations in this space. If you believe (as I do) that Level 4 self-driving technology is achievable in the next few years, and that urban taxis and heavy trucks are likely to be the spaces where it takes hold, then it might be worth taking a small stake in Aurora (or, for now, the SPAC) now to see how things play out.