Deep Medicine (NASDAQ:DMAQ) has entered into a definitive agreement to combine with Chinese carmaker Chijet at an enterprise value of $2.55 billion.

Chijit currently sells a line of gasoline-fueled SUVs and trucks in China and Southeast Asia and is working to build a production facility for a new line of EVs.

The combined company is expected to trade on the Nasdaq once the deal is closed in the fourth quarter of 2022.

Transaction Overview

Deep Medicine brings about $127.8 million from its current trust into the deal and has not yet supplemented this with a PIPE. The parties have not yet filed their merger documents or an investor presentation, but Deep Medicine’s profile page will be updated once additional information is available.

Both Chijet and Deep Medicine will be acquired by a newly-formed holding company through the deal and join Chijet’s other existing subsidiaries. These include: Shandong Baoya New Vehicle Co., in which Chijet holds an 85.2% stake, and is concentrated on manufacturing EVs, and FAW Jilin, which makes traditional fuel vehicles and Chijet has a 64.8% stake in.

Quick Takes: It certainly is an interesting time to try and take a Chinese company public in the US markets.

The SEC and its Chinese counterparts remain locked in a dispute over allowing US audits of listed entities based in China and a majority of such companies may be de-listed from US exchanges should the parties not come to a resolution. This mass de-listing could come as early as 2023 depending on pending legislation in the US Congress.

So, for any Chinese company, any SPAC deal may produce only a short trip to the US capital markets. Its manufacturing sector has also been hit with a wave of COVID-19 disruptions this year, with FAW Jilin among the companies that had to fully shut down for about a month.

But, the deal joins a relatively recent trend of smaller SPACs with Asia-affiliated teams striking up deals with Chinese automakers. East Stone (NASDAQ:ESSC) announced it would bring its $33.5 million trust into a deal with Chinese EV-maker ICONIQ in April, while Mountain Crest IV, with about $57.5 million in trust, announced a $1.2 billion deal with CH-Auto in May.

All three deals involve SPACs running close to their deadlines and with a wide range of expertise. As its name suggests, Deep Medicine was initially focused on combining with a healthcare technology target. Their targets all stand to have high capex demands to build out production that the SPAC’s trust cash may not cover – particularly in a high redemptions environment.

But, East Stone has managed to attract $400 million in PIPE cash to its deal and Mountain Crest IV is seeking a $100 million PIPE for its own. Deep Medicine has not yet pulled together a PIPE, but acknowledged in its announcement press release that Chijet plans to raise additional capital to fund its production expansion following close.

On a broader level, this deal comes at a time of cooling sentiment on EV companies, which were all the rage early in the 2020-2021 SPAC cycle. But, in addition to macro headwinds, a lot of the downward pressure has fallen on de-SPACs that are in early stages of commercialization, with some missing key milestones after closing their deals.

On the other hand, those that have performed better are generally those that have vehicles already on the road, which happens to be the case with Chijet. It currently sells three traditionally-fueled SUVs and four light truck models through about 300 dealerships in China and Southeast Asia, with minicar and sedan models under development.

This transaction is meant to help fund Chijet’s turn into EV manufacturing as it would help fund the 5.15 million-square-foot factory in Yantai, China along with a new headquarters that Chijet is building there. This is to have a production capacity of 200,000 EVs annually and would add to its current production base in Jilin City that is capable of pushing 240,000 vehicles off of the line.

Chijit did not disclose sales or any other financial figures in its initial release. But, by comparison, Japanese manufacturer Mazda (TYO:7261) projects global sales of 1.35 million vehicles over its next four quarters and has a market cap of about $4.7 billion.