Why choose a Special Purpose Acquisition Company (SPAC) to go public instead of making an Initial Public Offering (IPO)? After-sales service is ideal for a business with less than $ 100 million in revenue that wants investors to know how quickly its revenue will grow.
This comes to mind when you consider Valens Semiconductor, 15, a Hod Hasharon, Israel-based company that merged with a SPAC last month and expects its shares to start trading. on the NYSE this fall.
With a valuation of 1.16 billion dollars, Valens presents itself as “a key catalyst in the evolution of autonomous driving, providing chipsets that circulate in vehicles around the world”.
Should you invest in your stock? After a June 15 interview with Valens CEO Gideon Ben-Zvi, I think the answer depends on whether he can propel Valens to exceed its projected average annual growth of 48% in revenue over the next five. years.
Valens merges with PTK SPAC
Israeli companies were raising funds at a record pace in the first quarter of 2021. Capital raised in this quarter reached nearly $ 5.3 billion, more than half of the $ 10 billion that Israeli companies raised. during the year 2020. Valens adds to this total.
Ben-Zvi told me he took over as CEO of Valens because “it’s a great company.” How? ‘Or’ What? He said Valens has “shipped over 25 million chipsets, has a proven track record of successful technological innovation, and sets the standard for high-speed wired connectivity solutions.”
On May 25, Valens merged with a SPAC, PTK Acquisition Corp., and the transaction is expected to close “in the coming weeks.”
The management of PTK has “extensive operational and investment experience in the hardware and semiconductor industries. [leveraging]relationships with the global market to exploit synergies across the electronics and automotive value chain.
Ben-Zvi was looking for a buyer with significant experience in the semiconductor industry. He discovered this with PTK CEO Peter Kuo, who has over 20 years of experience. Kuo is co-founder of Canyon Bridge, Managing Director, Lazard, Managing Director, Cowen and Managing Director, Susquehanna.
PTK welcomes the merger with Valens. As Kuo said, “With Valens, PTK has identified a rare opportunity to partner with a company that defines the future of connectivity and is validated by multiple industry standards. With a proven track record of success, Valens is ready for a public company, with an addressable market, renowned clients and a compelling business model with a high degree of revenue visibility.
Valens targets a large market
Valens believes that its total addressable market is important.
Its target, the automotive high-speed connectivity chip industry, will grow at an average annual rate of 36.6%, from $ 1.6 billion in 2021 to $ 7.6 billion by 2026, according to Strategy Analytics Automotive Ethernet Market Projections, December 2019, Yole Automotive Interior Market and Technology Report. 2020 and Strategy Analytics ADAS Demand Forecast, May 2020.
Valens CEO has a solid track record
Ben-Zvi accepted the role of CEO of Valens in January 2020 – serving on its board since 2011.
His entrepreneurial background – including three successful exits so far – has led the board to conclude that Ben-Zvi is “an experienced pair of hands in guiding Valens to listed status”.
Ben-Zvi co-founded four companies with three exits. These included
- Co-founder, active chairman, BriefCam (acquired in 2018 for $ 90 million by Canon Japan, according to Globes)
- Co-founder and chairman of Wizcom – maker of the Quicktionary translation pen – which was acquired for $ 1.25 million in 2005, according to Globes
- Co-founder and CEO, HumanEyes Technologies – a “complete, end-to-end Jerusalem-based solution for creating and printing 3D and 2D effects” founded in 2001, according to Crunchbase.
- Co-founder and CEO of Ligature (acquired for $ 29 million in 1998, according to StartupHub.ai)
Customers love Valens technology
Valens has many customers and partners. According to the company, its HDBaseT technology “is the leading standard in the audiovisual market with tens of millions of Valens chipsets integrated into thousands of products. In the automotive industry, Valens already sells to various leading OEMs and automakers, including Daimler, Continental, Harman, Bosch and Molex.
Valens has been selected to implement the new global standard for automotive video connectivity. This standard is administered by MIPI, a global standards alliance to design and promote hardware and software interfaces that simplify the integration of integrated components into a device.
One of Israel’s most successful entrepreneurs is a fan of Valens’ MIPI A PHY product. “At Mobileye, we are working closely with Valens to ensure that our next-generation platforms will conform to the MIPI A PHY architecture,” said Amnon Shashua, Founder and CEO of Mobileye, the acquired machine vision company. for $ 15.3 billion by Intel in 2017.
Valens outperforms its competitors in the automotive market, due to its superior data transmission speed, its ability to transmit data remotely, the type of cabling supported and the ‘total system cost which is significantly lower than that of competitors, ”according to Valens.
One of the challenges of selling to major car manufacturers is that they take their time to adopt new technologies. As Valens told me, “The process of change in the automotive industry is slow, and so is the sales funnel. Even the time between selecting a product and producing it can take months or even years.
Valens is optimistic due to its “strong pipeline of over 10 automotive partners” and that it expects widespread adoption of MIPI APHY by 2025. As a result, Valens expects to generate more than “half of its revenues from the automotive business in 2026”.
Valens’ ambitious financial projections
When it merges with an SPAC, a private company is allowed to offer screenings publicly.
This is exactly what the Valens investor presentation does. It forecasts $ 67 million in revenue for 2021 and projects that figure to grow to around $ 480 million in 2026, an average annual revenue growth rate of 48.3%.
This marks an acceleration from the growth rate of Valens’ revenue between 2010 and 2020. During this decade, its revenue grew at an average annual rate of 34%, from $ 3 million. to $ 57 million.
Valens expects to achieve positive “adjusted EBITDA”, that is, profit before depreciation and amortization and expenses related to the provision of equity, by 2024. To achieve this goal, the company expects its operating expenses as a percentage of revenue will drop from 116% in 2020 to 52% in 2024.
Ben-Zvi is thrilled with the opportunity to lead Valens. As he told me: “I intervened [to the CEO job at Valens]and fell in love. This is the best irrational decision I have ever made. It’s good for the business, I can do it and I want to do it.
Valens has set itself ambitious growth targets. If its revenue can accelerate at an average annual rate of 48%, its stock is a buy.