Houston blank check company makes big merger deal

Steve Jurvetson

[UPDATE 9-30-20 – Deal has been completed – Head office moved to San Jose]

Graf Industrial Corp, which went public in October 2018, has announced that it has entered into a reverse merger agreement with San Jose-based Velodyne Lidar. Velodyne makes radar-like sensors used in autonomous vehicles. In 2005 it invented a real time 3D Lidar ( Light Detection and Ranging).

Velodyne was founded by David Hall and is backed by Ford, Baidu, Nikon and Hyundai Mobis. They will continue to own 80% of the combined company after the deal closes in the third quarter.



Valuation

The proforma enterprise value of the combined entity is $1.6 billion. Graf will issue $1.5 billion in new stock to existing Velodyne shareholders. Cash sitting on the Graf balance sheet ($117 million) and from the issuance of $150 million of new shares to institutional investors will be used to add $190 million of cash to Velodyne’s balance sheet and to pay $50 million to the existing Velodyne shareholders.

For 2018 through 2020, Velodyne has negative EBITDA of approximately $50 million each year. Its revenue of approximately $100 million in 2020 is projected to grow to $684 million.

Blank check company

Graf is based in NW Houston and was formed by blank check veteran James Graf. A blank check company is a company that goes public without any underlying business. Normally it has 18 months to make an acquisition, otherwise the money has to be returned. However, a company can ask its shareholders for an extension.

[Sentinel Energy, another Houston blank check company, went public in November 2017, failed to make an acquisition and returned funds to its shareholders two years later]. 

Purecycle deal falls through

Back in April, just before the proxy vote requesting an extension, Graf announced it was in negotiations to buy Purecycle, a PE-backed polypropylene recycling company in Ohio. Purecyle is developing technology (under license from Proctor and Gamble) that takes contaminated plastics and converts it into a reusable resin on a commercial scale. It’s not clear why this deal fell apart.

Earlier this week, the other Houston blank check, Landcadia Holdings II announced it would be buying Golden Nugget Online Gaming.

SEC Filing – Graf Velodyne reverse merger

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