Analysis: Vertical share issuance is best short-term raising option

Vertical Aerospace’s share issuance is another one to add to the trend of raising follow-on capital we’ve seen from some of the publicly traded eVTOL players.

This week the UK firm announced the upsized pricing of its underwritten public offering of $90m through a sophisticated structure which combines ordinary shares and warrants – linked to future milestones.

The $90m offering is priced at $6 per unit which contains one ordinary share and a warrant with two tranches.

The tranche A warrants will expire upon the satisfaction of two conditions including successful demonstration of a wing-borne flight of its VX4 prototype aircraft and successful volume and price conditions or after a period of five years from the date of issuance.

The company has priced tranche A of the warrants to be exercisable at $6 per whole ordinary share with tranche B exercisable at a price of $7.50 per whole ordinary share with a five-year expiration.

The move balances short-term survival with long-term performance incentives, which is often the only decision left open to companies like Vertical given how capital-intensive eVTOL is as an industry. The cash raised will see Vertical through another year of operation based on current burn rate.

Plus, linking warrants to milestones aligns investor interests with company progress. If milestones are reached this should boost confidence.

Also, the dual-tranche warrant structure gives the company access to potential follow-on funding as investors exercise their options, potentially bringing in more capital. This also gives Vertical some breathing room before it has to think about a larger funding round.

Finally, having institutional backing with William Blair and Canaccord Genuity as bookrunners lends credibility to the offering.

But the raise has its downsides. Offering shares and warrants at a lower price poses dilution risk.  This is reflected in the current share price which has tanked over 47% this week.

It is also worth noting, following the announcement, Canaccord revised its price target for Vertical’s shares to $13.50 – down from $16.

Additionally, the prices of $6 and $7.50 are relatively modest, this means further dilution will occur if milestones are reached and warrants are exercised.

Plus, failure to meet any of the milestones tied to tranche A within the five-year timeframe may prevent Vertical from unlocking future funding tied to warrant exercises.

All things considered, however, what other options are there available to Vertical and others of its ilk? Debt without a strong financial position would make it costlier, while strategic partners are tough to find. Both of which are reasons why offering shares at a discount has become a trend amongst some of the public eVTOL players.