Chenghe Acquisition Co. (CHEA) to Combine with Taiwan Color Optics in $380M Deal
by Nicholas Alan Clayton on 2023-07-21 at 11:47am

Chenghe (NASDAQ:CHEA) has entered into a definitive agreement to combine with precision glass-maker Taiwan Color Optics at an equity value of $380 million.

Taiwan-based Taiwan Color Optics was founded in 2009 and has a pair of R&D facilities in Taiwan working to produce precision glass, light and chip components for the electronics industry.

The combined company is expected to trade on the Nasdaq once the deal is completed in the fourth quarter of 2023.

Transaction Overview

Chenghe has an estimated $122 million in its current trust and may supplement this with a PIPE, according to its 8-K.

A Chenghe affiliate has already acquired 60% of Taiwan Color Optics, which is undergoing an restructuring. The parties have agreed to make best efforts of the transaction to result in Chenghe affiliates to acquire 90.1% of its equity.

Either side may terminate the deal should the equity purchase fail to reach this threshold.

Both the company and sponsor have agreed to a six-month lock-up. Chenghe must maintain more than $5 million in cash available in order for the deal to close.

The parties have not yet released an investor presentation, but Chenghe’s profile page will be updated once additional information is available.


Quick Takes: With little information out on this deal and a sparse details on Taiwan Color Optics’ (TCO) website, investors will likely want to hear more as this deal works its way through the process.

What is known is that TCO provides components for projectors, headlights and lidar. This last application is one that company hopes to further capitalize on.

But, if it is far along in the development of its own lidar products, the press release does not say so. Without further details, the lidar mention comes off as a buzzword. This may also not be the best group of de-SPACs to comp to in 2023.

The 10 lidar targets that have closed combinations with SPACs since 2020 are now trading at a median share price of $2.57. The best performer among this group is Luminar (NASDAQ:LAZR) which last closed at $7.02, down from a 52-week high of $11.35 and the heady heights of $37.89 in February 2021.

But, Luminar still glides above others in the sector by dint of its lucrative contract with Volvo (ST:VOLCAR) and proprietary technology. Although it trades at 59x revenue, one would not expect the same treatment for a company providing glass optics and other inert modules to manufacturers in the space.

TCO hopes to get into the higher-margin components, though. It also name-dropped AI in its press release and says that proceeds from the combination would be used to advance the company’s 3D-sensing chips to provide a higher-value add to commercial and consumer products.

It could also be good news for investors that that the high times for the sector have passed. Both private and public valuations have come down across this space, and TCO may be coming at a bargain if it is struck at a 2023 price rather than a 2021 mark.


ADVISORS

  • Company
    • Landi Lawyer is serving as legal advisor to TCO.
  • SPAC
    • Cohen & Company Capital Markets, a division of J.V.B. Financial Group, LLC (“CCM”), is serving as financial advisor and lead capital markets advisor to Chenghe Acquisition Co.
    • White & Case is serving as legal advisor to Chenghe Acquisition Co.

 

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