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15 Feb 2023
Hesai becomes first Chinese lidar firm to list on a US exchange, as rivals consolidate.
Silicon Valley lidar companies Velodyne and Ouster have completed their merger, following a two-week delay to enlist sufficient shareholder votes in favor of the plan amid opposition from a former Velodyne chairman.
The newly merged entity will be known as Ouster and led by that firm’s existing CEO, Angus Pacala. Velodyne’s CEO Ted Tewksbury becomes executive chairman.
“Together, we have an even stronger team backed by a healthy balance sheet, new channel partners, and a wide selection of positive-margin products to serve a diverse set of customers and win more deals than ever before,” said Pacala, who co-founded Ouster with CTO Mark Frichtl.
Frichtl is continuing in the CTO role, with the merger creating what the firms described as a “lidar powerhouse”.
“Following integration, the combined Ouster expects to retain approximately 350 employees with its headquarters in San Francisco and key offices across the Americas, Europe, and Asia-Pacific,” stated the firm, which is looking to save more than $75 million in annual costs.
Consolidation
Velodyne and Ouster were two of several lidar companies to have listed on the Nasdaq in recent years, but intense competition among the scores of venture-backed firms targeting the sector is now leading to significant consolidation.
In its most recent financial results, covering the third quarter of 2022, Velodyne posted an operating loss of $42.3 million on sales of $9.6 million.
For the same period, Ouster said it had made a $36 million loss on sales of $11.2 million - although the firm also listed $133 million in cash on its balance sheet as of September 30.
After announcing details of the merger plan alongside those financial results in November, Ouster and Velodyne said the deal would represent the “first major merger in the lidar industry”.
Widespread consolidation is expected in a sector that is thought to have peaked at around 90 participants. Speaking during the LASE plenary session at the recent SPIE Photonics West event, Luminar Technologies CTO Jason Eichenholz said that he expected to see significant consolidation over the next couple of years in particular.
Recent months have seen Quanergy Systems, something of a pioneer in the sector, de-listed from the Nasdaq and enter Chapter 11 bankruptcy protection as it seeks a buyer.
Boardroom friction
The Ouster-Velodyne deal did not attract universal support among the Velodyne shareholders, continuing a theme of boardroom friction that has impacted the San Jose firm in recent years.
The latest missives came from former Velodyne chairman Michael Dee, who resigned from the company’s board of directors in late January citing what he saw as “serious deficiencies” in the structure of the merger.
Calling for Velodyne shareholders to abstain in the final vote, held February 10, the investment banker says that although he had initially supported the merger plan, his view had since changed.
“New information and the actions of Velodyne have significantly altered my view of the advisability of this merger as currently structured,” he wrote.
“Thus, I personally have now concluded that the merger, as is, is not in the best interests of Velodyne shareholders…it is clear that the Velodyne board prefers further obfuscation of the reality of the transaction rather than a higher standard of transparency.”
Among several issues cited by Dee is a $40 million portion of Ouster’s debt, which he says has an interest rate of 14 per cent and has required the commitment of $60 million in cash maintained on its balance sheet.
Dee stated: “This debt is ill-advised, incredibly expensive for such an early-stage company, and the concept of borrowing such high-yield debt and then backing it with 150 per cent of cash is the pinnacle of absurdity.”
Dee also criticized what he saw as a lack of transparency with regard to both Ouster’s and Velodyne’s full-year sales for 2022. With the merger now completed, those figures are due to be revealed March 23.
Hesai raises $190M on Nasdaq listing
Meanwhile, a new lidar rival to Ouster and others has just listed on the Nasdaq. Shanghai-headquartered Hesai Technology becomes the first Chinese lidar firm to list publicly in the US, raising $190 million in the process.
Backed by the Huatai International Private Equity Fund (HTPE), Hesai was founded in 2014 and has developed lidar sensors for both automotive and robotics applications.
It is said to have shipped more than 100,000 units thus far, and is partnering with Lumentum on a contract to provide VCSEL-based sensors for Changan Automobile vehicles.
Yang Lei, managing partner at HTPE, said in a released confirming the February 9 listing: “It is not only a new milestone and beginning of Hesai, but also a remarkable footstep for all Chinese companies that plan to list in the US stock exchanges after [the] PCAOB audit breakthrough last December.”
That refers to the US Public Company Accounting Oversight Board, which on December 15 announced that it had “secured complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong”. According to PCAOB, the development will help to protect investors.
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