ESS Tech, Inc. current report, 06 May 2021

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Business Context and Reporting Period

ACON S2 Acquisition Corp. (STWO), a Cayman Islands special purpose acquisition company, filed this Form 8-K on May 7, 2021 regarding events occurring May 6, 2021. STWO entered into a merger agreement with ESS Tech, Inc., a Delaware-based energy-storage company. The proposed transaction would combine the companies, with STWO domesticated as a Delaware corporation and renamed ESS Tech, Inc.

Key Financial and Transaction Metrics

  • PIPE financing: Investors agreed to purchase 25,000,000 STWO common shares at $10.00 per share for aggregate gross proceeds of $250 million.
  • Minimum cash condition: ESS’s obligation to close is subject to aggregate cash from STWO’s trust account and the PIPE financing of at least $200 million, after shareholder redemptions and certain transaction expenses and liabilities.
  • Equity consideration: ESS common shares will be converted into STWO common shares based on ESS’s adjusted equity value, subject to the merger agreement.
  • Potential additional shares: Additional STWO shares may be issued to former ESS stockholders if specified share-price or change-of-control thresholds are met.
  • Revenue, profit, cash flow, margins, debt and liquidity: The filing text does not provide clear historical or pro forma values for these metrics. It also does not provide a clear standalone debt balance or trust-account balance.

Material Changes Versus the Prior Comparable Period

This is a transaction announcement rather than a periodic financial report. Accordingly, the filing does not present prior-period financial statements or comparable-period operating results. The material change is the execution of the definitive merger agreement and related financing arrangements.

  • The transaction is expected to close in the third quarter of 2021, subject to stockholder approvals, regulatory clearance and other closing conditions.
  • Following closing, the combined company is expected to operate under the ESS Tech, Inc. name.
  • The post-closing board is expected to have nine directors, including seven designated by ESS and two designated by certain existing ESS shareholders.
  • ESS’s current management team is expected to continue in their existing roles.

Guidance, Outlook, Risks and Unusual Items

Management’s transaction-related expectations include the anticipated third-quarter 2021 closing, access to the PIPE proceeds and future operating performance and market opportunities for ESS. The filing’s references to future revenue, enterprise value and cash balance are forward-looking and do not provide clear numeric guidance in the filing text supplied.

  • Closing depends on HSR Act clearance or expiration of the applicable waiting period, approval by STWO and ESS stockholders, effectiveness of an S-4 registration statement, completion of the domestication and satisfaction of other customary conditions.
  • The merger agreement may generally be terminated if the transaction is not completed by November 6, 2021, subject to a possible one-month extension in certain circumstances.
  • The PIPE financing is contingent on substantially concurrent completion of the Business Combination.
  • Risks include shareholder redemptions reducing available cash, failure to obtain required approvals, failure to meet listing standards, termination of the merger agreement, transaction costs, litigation, regulatory changes, competition, execution and growth risks, and retention of key personnel.
  • The PIPE shares are being offered in an unregistered private placement under Section 4(a)(2) of the Securities Act and are subject to registration rights.
  • Certain ESS shareholders agreed to support the transaction, while STWO’s sponsor, officers and directors agreed to vote in favor, waive specified anti-dilution protections and accept transfer restrictions.

Investor Verification Checklist

  1. Verify the definitive S-4 registration statement, proxy statement/prospectus, transaction valuation, exchange ratio and any subsequent amendments.
  2. Confirm the amount remaining in STWO’s trust account, expected shareholder redemptions and whether the $200 million minimum cash condition will be satisfied.
  3. Review ESS’s historical financial statements, revenue trajectory, losses, cash burn, debt, liquidity and projections, which are not clearly provided in this Form 8-K text.
  4. Confirm completion of stockholder approvals, HSR requirements, domestication, exchange listing approval and other closing conditions.
  5. Review dilution from the PIPE financing, warrants, sponsor arrangements, potential earnout shares and other equity incentives.
  6. Check the final closing date and whether either party exercises termination rights if the transaction is not completed by the contractual deadline.