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Jul 27, 2021
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PIPE (private investment in public equities) invested aggregate $2.5B in Lucid Group at $15 per share and received 166M shares (~10.5% ownership). The PIPE offering was oversubscribed at the time of the offer (Since LCID was trading in $50s / $60s), meaning the number of interested parties and offered capital to invest in Lucid far exceeded what was needed at the time. Ultimately 7 large institutions together provided $2.5B and Saudi's PIF was one of those 7 institutions. Saudis were already a large shareholder of Lucid and they had the final word which institutions can finally take part in the PIPE offering. Meanwhile they also took part in the PIPE offering to increase their stake and assure the chosen institutions how sweet they believed $15 offering was. The 7 institutions are:
- Saudi PIF ($200M)
- Franklin Templeton
- Neuberger Berman
- Wellington Asset Management
- Winslow Capital Management
In February after DA, Peter Rawlinson and head of PIF both emphasized that PIPE investors have "implied" long-term capital commitment. The definition of "Long Term" for them is not clear for us, but I doubt they would consider a few months as "long term". It appears they meant PIPE investors will NOT sell the shares and run away after a few month or even a year. Let's not forget these large institutions were " privileged" to be included in the $15 offering. I believe the Saudi's PIF criteria for choosing a handful of institutions to take part in the offering (among too many interested parties) should have been:
1- Relationship: Wall St and the world of finance is all about relationship. The clients pick you due to the relatio0nship and if your client is a sovereign wealth fund (PIF) that controls $800B reserves, losing your relationship is the last thing you want. Many of these asset management firms earn fees by AUM. If your $800B client throws you a fish (PIPE opportunity at $15) and they expect your "long term capital commitment", then you definitely ask their advice before selling shares after lockup expiration. Remember that every $1 this stock falls, the PIF loses $1B. If the PIPE sell off triggers a big meltdown, it severely damages their client (PIF). In Wall St, losing or souring your relationship with such a big client is the last thing you want. Being a go-to financial firm for such a large client (PIF) means earning hefty fees (Asset management fees, advisory fees, capital market fees) indefinitely into the future.
2- Size Most of these institutions are Wall St giants. Blackrock AUM is over $9T as of Q2'2021. Blackrock equates Wall St for many of the firms in the finance world. Larry Fink is seen as the strongest man on Wall St. Let's assume Blackrock, as one of the seven PIPE investors, invested $300M at $15 and by lockup expiration date the price is $45. They will have $600M gain. This gain looks huge for retail investors, but it is not huge enough for a company at the size of Blackrock, specifically if:
- It leads to losing PIF or imposing loss on the PIF (Remember Lucid is Saudi PIF's most successful investment so far). Losing PIF means losing billions of dollars of fees that can be earned indefinitely in the future.
- If Blackrock believes Lucid can grow even further in the future (+4 years)
- If Blackrock requires higher ROI on their Lucid investment.
3- Strength: The institutions chosen are among the strongest asset management firms on Wall St. They were chosen and they won the competition, however that winning should have come with strings attached to it. Expectation of long-term capital commitment is one of those.
Considering all the factors above, we don't have an easy guess about the behavior of the PIPE investors after lockup expiration. Once the lock up expires, they gain the ability to sell, however will they dump all the shares and run away? Likely not.
Last but not the least, the PIPE deal has put them in an "enviable position" among investors, since February many institutions and retail investors wish (and futilely wait) to buy LCID at $15 per share. Remember that many short squeeze scenarios have happened at lockup expirations due to massive bets against the stock leading to the lockup expiration date, due to the anticipated large sell-off, and the sell off not being materialized (i.e when investors don't sell upon lockup expiration).