Hughes Telematic's Uphill Battle
Few word combinations could arouse more bearish skepticism than SPAC, auto industry, public markets, pre-revenue and Apollo Management (given peHUB's recent Apollo coverage). Yet we have Hughes Telematics, an automotive supply company facing a shareholder vote to merge with a SPAC. The SPAC's $700 million deal for Hughes Telematics was the largest of this year when it was announced in June. That was back when news headlines read "SPACs are Back," trumpeting the attractiveness of the special purpose acquisition vehicle. The deal worked in Apollo Management's favor: Three years ago Apollo had backed Hughes, a venture-stage maker of in-vehicle telematics technology, and would have laid the groundwork for an exit before the company was even profitable. Meanwhile Hughes would have the financing it needed to get over the revenue hurdle, allowing Apollo to continue to take part in the upside. Increased volatility in the public markets and massive hedge fund redemptions make it safe to say those days are over. Layer that with the increasingly global woes of the automotive industry, and it's safe to say Hughes Telematics faces an uphill battle to get its deal approved. Talking to the deal's leader, Polaris Acquisition Corp. head Marc Byron, and you can sense the nerves. "We are definitely facing headwinds," he said. Last month Byron, Apollo Management and Hughes restructured the deal for a lower value ($385 million). Yet Byron assured me, repeatedly, that he and Apollo Management are bullish on Hughes Telematics and really, really, really want the vote to go through. Apollo and Hughes Telematics' management and shareholders even agreed to hold their shares for a two-year lock-up period. The first earnout shares are unable to vest till the stock price hits $20 (its around $8.86 now). Byron needs to convince $105 million worth of Hughes' shareholders to believe in the story, which he is painting as "the one bright shining star out there in this economic mess." Here's why.
