CarLotz Inc. (NASDAQ: LOTZ), a Richmond used car company that’s struggled amid a tight market, said Tuesday it has agreed to combine with San Francisco’s Shift Technologies Inc. (NASDAQ: SFT) in an all-stock merger.
Shift also works in used car sales, but through e-commerce on the West Coast. CarLotz started as a local startup and sells used vehicles on a consignment as opposed to a commission model. It primarily operates in the Mid-Atlantic after scaling back its brick-and-mortar operations in June in what it billed at the time as a cash-saving move.
CarLotz shareholders are expected to receive about 0.69 shares of Shift common stock for each CarLotz share they own, the companies said. The combined company will be headquartered in San Francisco and trade on the Nasdaq under Shift’s ticker symbol, “SFT.” The companies said they expect to have a combined cash position of $125 million after the deal closes, likely in the fourth quarter. Shift’s equity holders are expected to own about 52.9% of the combined company, while CarLotz’s equity holders will own roughly 47.1%.
“We see immense opportunity in combining Shift’s proprietary acquisition engine, which excels in buying cars from customers, with CarLotz’s unique consignment relationships to create a truly differentiated inventory strategy,” Shift President Jeff Clementz, who will become the combined company’s CEO, said in a statement. “There’s also potential to leverage Shift’s back-end technology and online checkout flow at CarLotz’s retail locations, to drive significant process and cost efficiencies.”
The California company said the deal is estimated to provide $75 million of incremental capital needed to break even and expects to reach profitability by 2024. It posted a $52.19 million loss in the second quarter on $223.73 million in revenue. So far in 2022, its share price has fallen 67.65% to $1.21 in Wednesday afternoon trading.
CarLotz reported a $34.91 million loss during the second quarter, up from a $7.21 million loss in the second quarter of 2021. Revenues were $76.49 million for the second quarter, up from $50.77 million in the same quarter of last year. CarLotz’s losses so far in 2022 have stretched close to $60 million. Its share price has slumped down 74% since the start of the year to 65 cents in Wednesday afternoon trading.
The market for used cars has faced rising demand but low inventory; price indices for used cars jumped 40% last year, and new car sales remain mired in delays created by supply-chain and labor issues stemming from the Covid-19 pandemic. That threw off CarLotz’s business model.
Founding CEO Michael Bor left in March and was replaced by Lev Peker, formerly the CEO of Los Angeles automotive parts seller CarParts.com. There have been several other changes in the C-Suite this year. The company went public via a SPAC merger in late 2021.
It was unclear what Peker's role would be in the merged company.
Combining Shift's technology with Carlotz's expertise and consignment model "will provide one extraordinary, omnichannel experience," Peker said in a statement about the deal.
