Manufacturing automation company Bright Machines is going public through a special purpose acquisition company (SPAC) merger with its sights set on two goals — raising money quickly to fuel its capital expenditure-heavy business model and broadening its reach at a time when companies are struggling with supply chain issues, something it can help them with.
“There's a nice alignment with the forces at play in the market today that makes the timing right for us to go public,” says Michael Keogh, the company’s CFO since August. “Companies are reshoring. Separate from reshoring, look at the [problems] in the supply chain. People have to come up with a different supply chain solution, so they’re looking to distribute some manufacturing to new locations.”
Bright Machines launched in 2018 by a former executive of contract manufacturer Flextronics (now Flex) and others to help manufacturing companies increase cost efficiencies by using artificial intelligence and machine learning to replace manual processes.
The company integrates the hardware side with the software side of the business through a micro-factory setup, which can make it easier for companies that are working through supply chain issues to replicate their operations elsewhere.
“Especially with what we’re seeing now with some reshoring and moving around supply chains, it’s hard to replicate that model anywhere else,” Keogh told CFO Dive.
Investors see the potential. The company, which generates about $35 million a year in sales to some two dozen customers, including medical diagnostics company DRW, attracted a $1.6 billion valuation in the spring when the merger was announced. It’s expecting to generate $435 million in cash through the merger, split almost evenly between the money held by the SPAC, SCVX Corp., and capital from a private investment in public equity (PIPE).
“I think we have a very aligned vision with our partner,” said Keogh. “They understand the business and help make the right connections, so there’s support from that perspective.”
The deal could close by the end of the year. Keogh submitted the company’s S-4 to the Securities and Exchange Commission (SEC) in mid-October.
“We’re just waiting for how many rounds of SEC commentary, how much they’re going to come back with questions on what we’ve submitted to them,” he said. “That’s the last piece that has to fall into place. Some people are seeing two rounds of comments, some are seeing four rounds.”
A SPAC merger was seen as the best route for the company given its capex-heavy business model and its goal to expand quickly to take advantage of market dynamics.
“I’ve come from some pretty capex-intensive businesses, so one of the elegant features of a SPAC is it allows you to raise a lot of money in one felled swoop,” Keogh said.
Because of the longer time frame and restrictions on forward-looking statements of a traditional IPO, the other alternative to a SPAC was to stay private, but that would have required multiple rounds of capital raises, which the company wanted to avoid.
“The organizational focus that goes into those rounds of private fund raising vs. being able to do it once is a nice feature of a SPAC,” he said.
Bright Machines is primarily a software company, but until it fully fleshes out its business model, it's operating as an integrated software-hardware company, which means it’s buying the hardware its customers use in tandem with its software. It’s that part of the business that adds costs to its model.
“Right now, the best way to highlight the benefits to what that software provides is through this integrated solution with the hardware,” he said. “We are buying someone else’s vision system, someone else’s robotic arm. So, we’re going to be in the hardware business for some period of time.”
Once it evolves away from that model, it can cut its capex to focus on the software side. “Over time, we’ll get to where we’ll be agnostic as to what type of hardware someone has,” he said. “They won’t have to buy our integrated solution. Today, that is our best way in, and it’s the quickest value proposition for the customer.”
Supply chain experience
To help the company prepare for going public, Keogh has been adding talent and getting systems in place to meet Sarbanes-Oxley and SEC reporting requirements.
“I’ve been bringing in some VP-level type folks that have been through IPOs before and that have also been in companies that have scaled from small to big really fast,” he said. “There’s one element of knowing what a well-oiled machine looks like; there’s another element of knowing what it takes to get there. That’s super important.”
The new help will be key for Keogh, who hasn’t taken a company public before. “This will be my first time through the process,” he said.
His background has focused largely on the supply chain side, helping manufacturing giants like Stanley Black & Decker, Intel and Apple manage their operational finances.
At Apple, in his initial role, he was based in China to manage the finance side of its push to triple production of the iPhone.
“My responsibility there was to negotiate all of the assembly contracts for 150 million iPhones that were going to be built in the next year,” he said. “What was our rate for assembly? How were we going to manage inventory holding costs? What do we do when we get those components we’re procuring from other customers?”
Adding to the challenge was the outsourcing, since Apple didn’t own any of the factories that were involved.
“We had to figure out the right incentive structure,” he said. “How do we ensure they have the capacity to never gate demand? So, a big part of it was how to create these rate structures. To what extent do we invest in that infrastructure? How do we ensure we aren’t just capacitizing for a peak? [Otherwise], you immediately thereafter have unused factory capacity.”
That background will be helpful since supply-chain issues are likely to drive an important part of the company’s business going forward.
“When you talk about market timing, there’s an element of that,” he said about timing the SPAC. “It feels like your traditional IPO would take longer and this feels like it’s a great opportunity for us. We chose the partner to merge with and things fell into place pretty well.”