Lidar makers Ouster Inc. and Velodyne announced that they have entered into a definitive agreement to merge in an all-stock transaction. The proposed merger is expected to drive significant value creation and result in a strong financial position through robust product offerings, increased operational efficiencies, and a complementary customer base in fast-growing end markets.
The robust product offerings include verticalized software to serve a broad set of customers. Operational synergies identified are across engineering, manufacturing, and general administration to support an optimized cost structure. The partners believe that a complementary customer base, partners, and distribution channels, along with reduced product costs and an innovative roadmap, will accelerate lidar adoption across fast-growing end markets.
The proposed merger is just the latest sign of consolidation in the AV tech space, with the share prices of both companies under pressure this year, with Ouster shares down 77% for the year and Velodyne’s off by 80%. The combined entity has an extensive intellectual property portfolio with 173 granted and 504 pending patents, backed by over 20 years of combined experience in lidar technology innovation.
The new company’s leadership team is to be led by Dr. Ted Tewksbury (currently Velodyne CEO) as Executive Chairman of the Board and Angus Pacala (currently Ouster CEO) as Chief Executive Officer.
“Ouster’s cutting-edge digital lidar technology, evidenced by strong unit economics and the performance gains of our new products, complemented by Velodyne’s decades of innovation, high-performance hardware and software solutions, and established global customer footprint, positions the combined company to accelerate the adoption of lidar technology across fast-growing markets with a diverse set of customer needs,” said Pacala.
He added that the new company will aim to deliver the performance customers demand while achieving price points low enough to promote mass adoption.
“Lidar is a valuable enabling technology for autonomy, with the ability to dramatically improve the efficiency, productivity, safety, and sustainability of a world in motion,” added Tewksbury. “We aim to create a vibrant and healthy lidar industry by offering both affordable, high-performance sensors to drive mass adoption across a wide variety of customer applications, and by creating scale to drive profitable and sustainable revenue growth. The combination of Ouster and Velodyne is expected to unlock enormous synergies, creating a company with the scale and resources to deliver stronger solutions for customers and society, while accelerating time to profitability and enhancing value for shareholders.”
Management plans to streamline operational expenditures to build an overall cost structure that is in line with the projected revenue growth of the combined company. Ouster and Velodyne had a combined cash balance of about $355 million as of the end of September, and they aim to realize annualized cost savings of at least $75 million within 9 months after closing the proposed merger. With an expanded global commercial footprint and distribution network, the combined company expects to deliver increased volumes and reduce product costs to better drive sustainable growth.
The merger agreement was signed on November 4. Each Velodyne share will be exchanged for 0.8204 shares of Ouster, the transaction resulting in existing Velodyne and Ouster shareholders each owning about 50% of the combined company. Barclays is serving as the financial advisor and Latham & Watkins LLP is serving as the legal advisor to Ouster. BofA Securities, Inc. is serving as the financial advisor, and Skadden, Arps, Slate, Meagher & Flom LLP is serving as legal advisor to Velodyne.
In a note to customers from Pacala and Nate Dickerman, President of Field Operations, Ouster, the two emphasized that the combination of Ouster and Velodyne is highly complementary. Ouster’s cutting-edge digital lidar technology, evidenced by strong unit economics and performance gains, combined with Velodyne’s decades of innovation and established global customer footprint, position the combined company to accelerate the adoption of lidar technology across fast-growing markets with a diverse set of customer needs.
More information about the combined company strategy will follow the closing of the proposed merger, which is expected to occur in the first half of 2023. In the meantime, Ouster will continue to operate business as usual as a separate and independent company, they wrote.
