UK used car platform Cazoo has announced it is to list in the US for US$7bn through a merger with special purpose acquisitions vehicle or SPAC AJAX I.
The deal’s value has raised eyebrows given that Cazoo was only founded in 2018 and the price is more than twice its implied value in a funding round in October.
Around US$1.6bn of new money will be raised through the deal, which Cazoo has earmarked for brand, marketing and infrastructure spending and also to expand into new markets such as Italy and Spain.
“It gives us enough capital to take us to profitability and beyond,” founder and chief executive Alex Chesterman said.
The new money is coming from the US$805mln AJAX I raised in October when it listed and US$800mln through a private investment in public equity (PIPE) at US$10 per share.
DMG Ventures, the investment arm of the Daily Mail owner DMGT PLC (LONL:DMGT), currently owns 20% of Cazoo and said in a statement today its stake will worth US$1.35bn in cash and shares, but added it is likely to take some cash out with a 5-6mlnth lock-in thereafter.
“We are delighted by the rapid progress the business has made and the capital appreciation on our £117m investment,” said Paul Zwillenberg, DMGT’s chief executive.
AJAX 1 is a SPAC lead by billionaire Dan Och, with the PIPE investors said to include D1 Capital Partners, BlackRock and Fidelity.
In an interview with the Standard, Chesterman who has already made one fortune with online estate agent Zoopla, said the US was an easier place for tech companies to develop as they are understood better there.
“The UK is an amazing place to build a business but the IPO process is challenging for companies investing in high growth. It is just better understood by investors in the US.
“US investors understand better businesses investing in the short term for future growth.”
Chesterman also defended the short trading record and said the business would make revenues of US$1bn this year.
He said the value was similar to US business Vroom, which is worth US$5bn, adding Cazoo was more advanced than Carvana, a US business now worth US$45bn, at a similar stage in its development.
In a statement, Cazoo said it aims to make buying a car no different to any other product online today with customers able to complete a deal online in 72 hours.
Industry data suggests that just 1% of used-car sales are online, but Cazoo sees scope for the share to rise rapidly.
The company has started to spend heavily to build its brand with TV advertising and sponsorship of premier league clubs Aston Villa and Everton and cricket’s new Hundred format.