April 4, 2022 – On today’s show we welcome the team from Andretti Acquisition: Michael Andretti, Bill Sandbrook and Matt Brown. Andretti Acquisition is a special purpose acquisition company focused on the automotive industry.
On the show, they discuss:
- Michael’s career in racing and his transition to business
- Andretti’s due diligence process and approach to potential deals
- The automotive industry and which segments are attractive for investment
- Their thoughts on the current market environment
- And more
Transcript:
Welcome investors to The Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies, your hosts, Julian Klymochko, and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate Financial Technologies. Accelerate because performance matters. Find out more at accelerateshares.com.
Julian Klymochko: Alright. I’m welcoming the Andretti Acquisition team to the podcast today. How are you doing guys? Nice seeing you.
Speakers: Great.
Julian Klymochko: Awesome. Well, got a few of you on. Michael, Bill and Matt. I wanted to start off. Going to you, Michael. You are a legendary race car driver, and your father was too. So certainly, you have a massive brand name, not just in racing, but you know, most people know who you are. 42 race car victories, so significant presence in that area. Do you want to talk about your career in racing and transitioning to now running and Andretti Autosport?
Michael Andretti: Well, yeah, I was, you know, I was lucky enough to have a fairly successful career and, you know, was a getting to the point at the end of my career, I’m wondering what I was going to do beyond my driving years. And you know, the opportunity came up to buy the team that I was driving for at that time. And that’s what I did because I wanted to involved in the sport in some way, because I love auto racing. It’s been my whole life. And so, I was lucky enough to purchase the team and you know, it’s been quite an interesting journey, you know, from where we started to where we are right now, it’s been really exciting. We’ve been quite successful, won a lot of races, over 200 some races and all the categories that we in. We’ve won five Indy five hundred, which is only second, to Roger Penske. And you know, we’ve won four championships as well in IndyCar, yeah, it’s been a fun ride. So, looking forward to things in the future as well, a lot of exciting things we’re looking at.
Julian Klymochko: Speaking of the future, you’ve had, I guess this will be your third career transition, obviously super successful, first one as a race car driver, and then as an owner of a racing organization and now launching Andretti Acquisition and the business side of things, what are you looking to accomplish with the special purpose acquisition company that you’ve launched?
Michael Andretti: Well, you know, the idea came up with this SPAC about a year and a half ago when things were hot in the SPAC market. And, you know, I figured we had something that was quite different, especially in the sustainable space, you know, you know, we had a brand but we have a lot of expertise in the space as well as a lot of context in the space. So, we felt that we were a little unique to others out there. And so, at that point, you know, I needed to find somebody that I could trust and partner up with, and that would really protect our brand and somebody that really knew the public market and, you know, Bill was the first guy I called, and Bill thought it was a great idea and here we are.
Julian Klymochko: And bill, what are your thoughts in launching a SPAC? What were you looking to do with it?
Bill Sandbrook: Well, I think it’s a unique opportunity with what I’ve done with my post [Inaudible 00:3:12] career in the public markets and my ability to convince CFO from my public company days, Matt Brown, to join me that if we combined our expertise in public markets and our acquisition experience, I’ve done over a hundred acquisitions, Matt’s done a ton of them. Matt’s IPO companies. We’ve turned around companies. That if we combined that with Michael and his brand, his family’s brand, his and his father’s connectivity through the sport, not only within the sport, but through the vast sponsor base that they’ve developed over 50 years. And then Michael’s pensioned for really teaming up with new tech technologies in racing, a founding team owner in the E-Series when electric was just starting. A founding team owner in Extreme E, which has a big ESG theme to it with 50% of the time of a female and 50% time a male driver racing in ecologically sensitive spaces.
I mean, he’s got all the right things going at the right time. And the SPAC opportunity brought me and Matt together with the Andretti and I thought it was an optimal idea. Now, I don’t know if, you know, I don’t think it came up earlier, but Michael and I were next to neighbors growing up. So, I’ve known him and his family and his dad and his brother and his sister and everybody else for over 50 years. So, and we’ve stayed friends for over 50 years and just started business together about four or five years ago when U.S. Concrete sponsored his son Indy car. But this isn’t a marriage of convenience. This is a marriage of two families that have known each other for whole lives.
Julian Klymochko: And Bill living next door. He didn’t get you into racing yourself.
Bill Sandbrook: No, I wanted to go off into the Army. I had other adventures in front of me [Laughing].
Julian Klymochko: Ah, makes sense. But getting back to this racing analogy, Michael I’m just trying to see the parallels between racing and business as both can be high risk, high reward activities. Are there any other parallels that you bring over from your decades, long racing career into business, and what sort of lessons have you learned in racing that you can apply as you go on this acquisition journey?
Michael Andretti: Well, as you know, racings very competitive. I know, you know, where we are right now within the SPAC market, it’s very competitive and you know, we have the attitude of we’re going to do whatever it takes to win. And that’s what we’re going to do. You know, this cannot fail. This has got to be a successful venture. And I have all the confidence in the world that we have a great team, not only of Bill and Matt, but also our board of directors. We had a great board of directors with a lot of experience in all different fields that I think are going to be great to lean on as well. So, you know, I think it’s about team. I think when you ask one thing is teamwork. Teamwork is a big thing in our sport and it’s about having the right people. And I think, you know, so far, we’ve done a really good job in that side of it.
Julian Klymochko: That makes a lot of sense. Now, focusing on the SPAC that you guys recently launched, you are looking at opportunities that can benefit from both the iconic Andretti brand inside and outside motor sports. So how are you approaching your search to acquisitions?
Michael Andretti: I’ll let Matt take that.
Matt Brown: Yeah, I’ll take that. So, if you look out at the pipeline that we have now of acquisitions, we have about 60 companies on our list and a lot of those actually approached us. And this goes back to when we first filed our S-1 registration statement, we started getting in balance from various companies just based on their knowledge of the Andretti brand. So that’s continued to build, and at this point, since we’ve gone public, we’ve actually been talking to the companies and we’re in initial conversations with a lot of companies now. We’re also to the point of visiting facilities with others. So, we’re at the early stages of diligence. And in terms of what we’re looking for in the companies, generally we’re looking for are companies that create a need or fill a need in the market that’s not being met by other companies.
We’re not looking for me too stories. So, we want a company that has various entry that brings something new to the market. And most importantly has a clear path for stay on profitability going forward, because there have been a lot of companies that have deSPAC the last year or two that ended up having projections that were too aggressive. Maybe they weren’t ready to do public companies, but as a result of that, their valuations have come under pressure since they went public. So that’s something that we’re looking to avoid as we go through our process here. Another thing that we look for in companies, and this is to validate their ability to scale is partnerships with established players in the industry or investments by major investors or other strategics within the industry. And then finally relates to the brand itself. We really want the targets to have the ability to be driven and have their growth driven after the acquisition by Andretti brand. And what does that mean? It’s really three things. One, the Andretti brand is recognized by 75% of Americans. That’s probably more Americans that recognize who the Vice President of the United States is now. That brings a lot of name recognition to the target company, which can drive growth. In addition to that it’s relationships, the Andretti Autosport organization has over 150 names that are sponsors of that organization. So, these are blue chip companies within the mobility industries and beyond and they’re actually paying to be associated with the Andretti brand. So those are attributes that they want to associate with them like performance, winning, family, and things like that. So, it’s a very well-known brand in the U.S. and internationally actually. So those are a couple things that the brand brings, obviously, when you have relationships like that, that can facilitate introductions and partnerships with other companies that can lead to sales agreements, vendor agreements, technology agreements, and things like that.
All those can drive growth after the DeSPAC. And then finally, it’s, Michael’s involve in racing. And if you think about technologies that in ended up in passenger cars, a lot of those actually originated in racing, for example, aerodynamics, carbon ceramic brakes, rear view mirrors, things like that. So basically, those things trickle down and Michael is a completely immersed into racing and he’s at the forefront of a lot of these technologies, and these will potentially end up in the target company’s product. So, he makes sure the target company is at the forefront of technology. So those are things that we’re looking for, the companies that can benefit from those things are the ones we’re looking for. Now, I would say in terms of profile, if you look at companies that have DeSPAC, typically their startups and in a perfect world, we would find a business that has revenue and even EBITDA. The reality though, is that most companies they’re looking to engage with SPAC are startups because they can bring their projections into the process of looking with investors. So that’s kind of how we’re thinking about acquisitions at this point.
Michael Kesslering: Oh, and that makes a ton of sense. I mean, a number of the points that you touched on are things that are sometimes criticisms of the SPAC space, is that it’s all pre revenue companies just looking for a way to go public. That’s a common criticism, you know, looking at sponsors, that there’s a vast array of sponsors. And I think something that hit home is looking to drive growth after the DeSPAC. One other thing you mentioned kind of in tandem with that would be strategic investments. With that, are you referring to already looking at pipe investors and things of that nature on the back end or is that taking a different form?
Matt Brown: No, that’s a very good point. That’s something that’s actually, a lot of our targets are very focused on because the pipe market has become a lot more difficult over the last six to nine months. And redemptions have increased a lot in the market as well. So, as we think about putting together a pipe if you look at our IPO. Our IPO was several times oversubscribed in a tough market. So, we had a lot of interest by investors, and we had an number of those indicate that the appropriate time they would like to come over the wall and look at a pipe with us and validate the transaction. So, we think we’re pretty well positioned there on the financial investor side. And to your point, we also intend to look at Michael’s relationships with sponsors and otherwise in the industry to see if we can tap some strategic capital, which might be a longer term, more stable source of capital as well. And then when we look at targets, a lot of those targets have relationships and strategics as well, or maybe even their existing investors that might want to participate in a pipe. So that’s another source of pipe capital as well.
Michael Kesslering: That’s great. Michael, you mentioned in a recent Bloomberg interview that you don’t believe SPAC would work very well for owning an F1 team. Do you want to go into some of the rationale for some of our listeners on why maybe the SPAC structure isn’t the best way of taking a company public or anything like that for an F1 team?
Michael Andretti: That could be a way of making it go broke, been known to do that. You know, it’s a tough one to do because, you know, you’re going to go into it and you know, to actually get yourself into a position where you’re making a profit’s, very difficult in that space. So, I think you know, I would hate to do those calls with all the investors because I know it wouldn’t be fun numbers at the end.
Julian Klymochko: So, on the flip side of things, looking for something that is very profitable and great to invest in, or at least the prospect of that within the automotive industry, which specific segments do you feel are attractive for investors?
Michael Andretti: Who want to take that? You want to take that second?
Matt Brown: Yeah, I’ll take that. So, what we’re looking at now is really the entire mobility space, and that represents a total addressable market of almost $3 trillion. So that would include everything from the things you associate with SPAC like electrification and autonomy, all the way to the more traditional businesses like aftermarket service and retail. And it also includes things like performance and luxury-oriented companies. And those are things that you would really associate with the Andretti brand. So, within that, within electrification, it’s not only EV manufacturers, but also things like charging networks, battery technologies, and even recycling. Within autonomy and in the more broadly software, you have companies that are looking to make trucks, autonomous, things like that. You also have companies that are looking at new software and operating systems for vehicles. So those are things we’re looking at as well.
Regarding LIDAR, that’s another area of autonomy. We’re not seeing as much of that in the market now. I think that investors have a hard time now differentiating between different LIDAR stories. So, it’s already a crowded space and more broadly, there’s been a shakeout in disruptive technologies since last spring, really. And as I mentioned earlier, a lot of these companies have just proven that they were too aggressive in their project. So that’s something that we’re going to be very diligent about as we look at these companies. Investors are much more wary about that.
Julian Klymochko: Right, so would you say you’re taking a different approach and not what we saw a lot last year and the year before was, you know, LIDAR technology, EV battery charging, EV manufacturing and all of those, have really gone out of favor in what we’re starting to see the market favor more so cash flowing businesses, for example, one recently fairly successful De-SPAC in the automotive space was Holley who we also had on the podcast that one’s done quite well, just because you know, they have EBITDA and free cash flow and you know, more traditional profitability metrics as a opposed to these all these startups going public with hypergrowth projections that may have not turned out as expected from investor standpoint.
Matt Brown: Right, yeah. We watched the Holley transaction that was actually going to market early last year. But yeah, I mean in a perfect world, we would find companies that already have revenue and EBITDA. There are some of those out there that we’re seeing, but we’re also seeing a lot that don’t have that. With respect to the ones that don’t have that we’re really looking for ones that bring something different to the market. And maybe a little bit further along for example if it’s the new technology, there are certain stages of that technology. Maybe a battery technology company has a battery that’s actually ready to commercialize as opposed to more of an idea, stage thing or early development. So that along with partnerships with some established players that bring credibility for some of the things that we’re looking at, but we’re not completely discounting the sector of startups. I mean, there’s just a lot of them out there that are interesting at this point still. And they haven’t fallen completely out of favor. The key is going to be the valuation. If you can acquire them an evaluation that leaves upside for investors, then that’s really, what’s important.
Julian Klymochko: Now I wanted to touch on the process that you go through in terms of sourcing these opportunities and ultimately evaluating them as you move into definitive agreement, Bill and Matt, you indicated that you’ve completed over a hundred acquisitions within your public company experience. Was wondering, you know, how do you approach the current market in terms of deal sourcing? Are you looking at venture capital firms, private equity funds and where they’re looking to exit? You mentioned a lot of inbound opportunities, are they proprietary opportunities or are you in competitive situations with other SPACs, for example, through an investment bank or things of that nature?
Bill Sandbrook: Go ahead, Matt.
Matt Brown: Yeah, so, it’s a combination of all the above, but we try to stay away from the more competitive situations. I would say most of the ideas we have were inbounds, some of them and the inbounds could be to any of us on the management team, any of the people on the sponsor team or of the board or to our advisors. I mean, we’ve gotten a lot of ideas come in just through the investor relations line since we’ve gone public. But we also have been looking at the market and RBC is our bank. They have a strong knowledge of the sector. So, they have a lot of ideas on the situations that they’re familiar with out there. So, they us build a list from that. And then our board members had ideas as well. So, it’s a combination of all of the above. And as we talk the targets, we get a feel for what kind of situation they’re in. Some of them have their advisors, setting a timeline for putting in proposals and things like that. Some of them are just more engaging with us only. So, I’d say it’s a variety of different types of situations like that. Most of them are proprietary though.
Julian Klymochko: It certainly, sorry, go ahead.
Bill Sandbrook: And I would just add to that, that a large number, not the majority have sought us out because they’ve seen the same value as our investor base did of what we bring to the table.
Julian Klymochko: So, touching on the macroeconomic environment, certainly a lot of, you know, drama, conflict happening, geopolitically, which is affecting the market. Not only that, but highly competitive SPAC environment, over 600 blank jet companies out there looking for a business combination and that has left many SPAC investors fearing that some of them may not come up with a deal and will liquidate empty handed. What are your thoughts on the current market environment and how does that affect your process?
Bill Sandbrook: Yeah, I agree with that assessment with 600 out there. Our advantaged in that is we’re just a little bit over a month old into our process. So, you know, coming into a very choppy market, everybody knowing how many SPACs are out there and still being significantly oversubscribed and having a long runway and the ability to extend it for an additional six months. The macro will change during the next 24 months that we’re in existence. But good companies will still be good companies and disruptive technology is going to continue and the push towards decarbonization is going to continue. So, the macro trends outside of the geopolitical, you know, mess we’re in right now, the macro trends toward decarbonization, they are firmly embedded. And we’re going to take advantage of that. And we have a long runway to do it.
Matt Brown: Another actually advantage of the volatility in the equity markets now is that it makes traditional IPOs less attractive for target companies as opposed to a De-SPAC, because we’re already public, we’ve already gone through that stage of risk if you will, to access the market. So, there’s a little less risk from that perspective in a De-SPAC and we’re differentiation from other SPACs. A lot of SPACs are born from private equity companies or hedge funds, basically financial players. We bring a different set of attributes that can drive growth after the De-SPAC. So, we consider ourselves a more strategic SPAC. We had the public company experience, we’ve actually sat in the seat of the public company executives that we’re talking to, and we bring the Andretti brand, which is tremendously powerful.
Michael Kesslering: Yeah, and that’s a really good point in times like these where it’s a lot more uncertainty in volatility is, that’s one of the advantages of De-SPAC is, you have kind of a set timeframe on how long it’s going to take you to go public. And more importantly a set price as opposed to the whims of the market on the particular week that you’re IPOing. So that’s a huge advantage. Just backing up away from SPAC and into kind of racing and the automotive industry as a whole. Michael, what are some of the interesting growth opportunities, not just for F1, but the sport of racing as a whole, as you know, drive to survive on Netflix, it seemed like opened up the sport to a whole new audience?
Michael Andretti: Oh, for sure. You know, I think for formula one their growth in the last couple years has been amazing in the U.S. for sure. But you know, I think you asked me the question, you know, you mean, technically, which way is racing going?
Michael Kesslering: Both from a technology standpoint and from just the sport as a whole
Michael Andretti: Okay. Technology, I mean, I think there’s going to be, you know, I think hydrogen is probably going to start to the sport more, you know, and then other alternative fuels, carbon neutral fuels and things like that, I think are going to be part of the future. But as for the sport in general. The health of auto racing worldwide is surprisingly has been quite good, you know, across all sectors of racing, you know, for instance, last weekend we were just at St Petersburg for the IndyCar race, and it was a record crowd there. So, we’re expecting to see a lot more of that. You know, this year, not only in IndyCar, and other parts of the sport. So, it’s actually pretty exciting time right now for auto race.
Julian Klymochko: Now, expanding beyond just auto racing. I was wondering how you guys think about the market over the next, say 10 to 20 years from the perspective of the automotive industry, you mentioned some themes such as decarbonization, new fuels, electric vehicles. Are there any other macro that you are focused on that you think have a high likelihood of success perhaps within the consumer market?
Michael Andretti: I’d say Bill, you answer that or?
Bill Sandbrook: Yeah. I mean, from what we’re seeing, I mean, you hit some of them, I mean, electrification, battery technology, hydrogen. If you fast forward to 20 years from our conversation today, the things that we think are cutting edge now will be mundane, and they’re going to be commercialization of things that we aren’t even thinking about at this point, but the macro trend of decarbonization is going to push the entire mobility space. I think as quantum computing gets more and more advanced, you’re going to have massive increases in autonomous, at least in different applications that are just scratching the surface right now. But yeah, I think the entire world is in a 30-to-40-year change from fossil fuels into this new decarbonization and mobility is going to be affected mostly not only ground transportation, but aerial transportation, flying, et cetera, et cetera.
Julian Klymochko: What I think is really cool is that now consumers have access to pretty much a race car. Speaking of the Tesla model S Plaid, 0 to 60 in about two seconds. Now, Michael, I’m sure that’s even faster than a lot of the race cards you drove back in the day. Speaking of which, just a fun question prior to letting you guys go, each one of you, we can start out with Bill and go to Matt, then finish with Michael. What’s your favorite car?
Bill Sandbrook: Oh, God, I don’t know.
Matt Brown: That’s a better one for Michael, I mean.
Bill Sandbrook: There’s a lot of nice products out there for sure. You know, it depends on where, you know, you’re talking sports car, are you talking, you know, know SUV? I mean, you know, I got a little bit of favoritism towards Lamborghini. I’m a big Lamborghini guy. I got a couple of them and so I guess Lamborghini.
Michael Andretti: You’re talking to a guy who’s still driving his a 2007. I’m a utilitarian in my car purchases.
Julian Klymochko: It’s not a 2007 Lamborghini, is it?
Michael Andretti: No, it’s a 2007 Escalade, but it’s perfectly fine.
Julian Klymochko: Perfect. And Matt, what’s your pick?
Matt Brown: For traditional cars, not super cars or anything. I like horses and for the new EVs, I think the lucid Air is pretty cool.
Julian Klymochko: Right.
Matt Brown: The piece with the.
Michael Andretti: That is a nice car, yeah.
Julian Klymochko: Nice, awesome. Well, thank you guys so much. If investors are interested in looking more into the SPAC. Trades under the ticker symbol, WNNR. Could be a winner there. So, I’m liking that ticker and we’re wishing you guys the best of luck, we will be following it closely.
Michael Andretti: Thank you guys.
Bill Sandbrook: Great. Thanks, Julian.
Michael Kesslering: Thank you everyone.
Julian Klymochko: Alright, thanks guys.
Matt Brown: Thanks guys.
Julian Klymochko: Take care.
Bill Sandbrook: Bye, bye guys.
Michael Kesslering: Have a great day.
Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.
