El Segundo’s Navitas plans to upend device charger market with $1 billion public offering
Gene Sheridan hopes to expand his power company’s market from cell phones to data centers, solar panels and electric vehicles with a $1 billion public offering
Story by Jake Safane
Photos by Philicia Endelman (PhiliciaEndelman.com)
Gallium Nitride Valley. The words don’t have quite the same ring to them as Silicon Valley. But at the pace Gene Sheridan’s Navitas Semiconductor is growing, Gallium Nitride (GaN) could be the next big combination of elements (Gallium and Nitrogen) to power the modern world.
The Palos Verdes Estates resident co-founded Navitas with Dan Kinzer in 2014. During the third quarter of this year, they plan to take their company public, via a special acquisition company (SPAC). The public offering will value the company at over $1 billion. The transaction will raise over $350 million in capital, to help Navitas grow beyond its core business of creating fast mobile device chargers.
In late 2019, Navitas set out to raise $15 million, and ended up raising over $50 million, in part thanks to pandemic-fueled growth.
“Then we saw the U.S. stock market getting more attractive for [companies going public]. Between that fact and our GaN for mobile chargers taking off, we wanted to go faster,” Sheridan said.
Sheridan sees huge potential for GaN in powering three new markets: data centers, solar panels and electric vehicles.
“We thought if we could raise hundreds of millions of dollars, not just that $50 million, we could really step on the gas and become the next-generation power chip company by taking GaN to all these other markets,” he explains.
The SPAC Route
The company is leveraging a trending area of finance by going public via a SPAC. In a traditional initial public offering (IPO), a company works with investment banks to line up initial investors to buy shares in the company going public. The company then gets listed on a stock exchange for the general public to trade shares in.
However, an increasingly popular way to go public is through SPACs. The first quarter of 2021 saw 469 SPAC IPO filings, compared to 123 non-SPAC IPO filings, according to Deal Point Data.
SPACs work in reverse of the traditional IPO. They go public as so-called blank check companies, raising money from investors and listing on stock exchanges, but not actually having an operational business. They typically go public with the intent to merge with a private company. Doing so means that the private company becomes publicly traded, because the SPAC that they merged with was already listed on a public exchange.
One advantage of a SPAC is that the process tends to be quicker than the traditional IPO route. Another advantage is it allows the two merging companies time to discuss the deal in depth.
“In a traditional IPO, you go out and talk to lots of investors. But it’s usually a one hour meeting, with as much as you can pack into a public presentation, which really can’t go into all the confidential future plans of the company,” explains Sheridan. “The rules are different for a SPAC IPO. You can use an NDA (non disclosure agreement) to share confidential information not only about the technology but about future plans.”
That confidentiality, combined with the highly technical nature of Navitas, made a SPAC a better fit, he says. “Because if I can find investors who understand my business, they’ll be better long-term investors, not short-term investors who hear a good story, but as soon as there are bumps in the road, they jump to the next interesting IPO.”
Rick Hendrix and Gary Wunderlich are co-founders/managing partners of Live Oak Merchant Partners — the parent of Live Oak Acquisition Corp II, which is the SPAC that’s combining with Navitas to take it public. They will join the Navitas board of directors.
“We agreed to longer lockups (the period in which an investor must hold their shares) than are typical in a SPAC merger because we view this as a long-term investment,” says Hendrix.
New sustainable markets
“Gallium Nitride is going to become the backbone of power going forward, and we think Navitas is going to be the leader in that transition,” says Hendrix.
“Putting over $350 million in cash on the balance sheet and getting the company public solidifies the long-term staying power, which their customers will perceive. They’re no longer a young company at that point. They’re a high-growth, public company. That allows customers to have a higher degree of comfort in committing to long-term product designs.”
So far, much of Navitas’ work has been in the consumer electronics market, using GaN to create smaller, faster chargers for mobile phones and laptops.
“We can take that same technology for those relatively lower-power applications and scale it up to much bigger equipment and higher-power applications,” explains Sheridan.
He sees significant potential to increase the energy efficiency of data centers, which can be used for everything from cloud computing to mining cryptocurrency.
“The data center is famously a power hog,” says Sheridan. “The number one cost to operate a data center is electricity.”
“We deliver the energy for data processing without burning it up as heat, which is what happens when you have inefficient power supplies,” says Sheridan. “This cuts the electricity cost and cuts the cooling costs for a data center because you have less heat when you’re not wasting that energy.”
This type of efficiency can also apply to getting more energy out of solar panel installations and reducing their upfront cost, leading to more solar power adoption.
Sheridan thinks Navitas can also make electric vehicles (EVs) more attractive by speeding up charging times and extending the driving range.
“If you make the electronics in the car more energy-efficient, you’re not wasting the energy burning it up as heat. You’re going to use that energy to move the car further,” says Sheridan. “By using our chips we believe we can increase the driving range of a car by at least 5 percent. Every 1 percent is hard to come by, and it’s a big deal.”
By making EVs and solar more popular, Navitas will contribute to the broader sustainability movement.
“We love that element of who Navitas is,” says Live Oak’s Hendrix. “It’s not how we generally start our investment process, but the fact that you can invest in a company that is helping to be part of the solution is a great thing.”
International, yet local
The El Segundo-based company currently has around 50 employees in the South Bay and approximately 100 total. With capital from going public, Navitas plans to add hundreds of positions over the next few years. That includes 50 to 100 more South Bay employees in knowledge-based, corporate strategy type roles.
“We see ourselves as a California-based company, but very much an international one as well,” says Sheridan.
Sheridan grew up in upstate New York, but has spent much of his life in the South Bay. He came to the area to work for International Rectifier in El Segundo over 30 years ago. After living in Manhattan Beach, Hermosa Beach and El Segundo, he settled down in Palos Verdes to raise a family.
“The green grass, the views of the ocean, you’re five minutes from the beach, but you’ve got a lot more space, the parks, the school systems, all of that rolls together, and it becomes heaven on Earth,” he says.
When he asked his two college-age children (he also has two children in elementary school) what they want to do for a living, they said whatever they need to do to stay in Palos Verdes.
“That’s a great validation of the community and why people probably don’t leave very often once they have a taste of this wonderful living and work-life balance,” he says.
Sheridan credits the greater South Bay, with its technology talent, beach lifestyle, proximity to LAX and its legal and finance services as a crucial component to his company’s success.
“The South Bay offers a really rare blend,” he says. “I don’t believe there are a lot of communities anywhere else in the world that can [offer] that. It’s certainly been a big part of allowing us to start Navitas, grow it and now get to this stage where we can really scale it big.” PEN