Workhorse Group, the Cincinnati-based technology transportation company known for its electric last-mile delivery vans and trucks, plans to spin off its aviation division into its own publicly traded company. The new company, SureFly Inc., is named after the Workhorse SureFly personal helicopter that is expected to be demonstrated in Las Vegas next month.
SureFly Inc. will encompass all SureFly aerial technology and expertise, including property related to the personal helicopter, but it will not own the assets related to the HorseFly package-delivery drone, which will be retained by Workhorse. The new company, according to Workhorse, is commanding a $33 million pre-money valuation.
“This agreement provides Workhorse with additional capital to bolster our balance sheet and, once the spin-off is complete, will enable us to focus all of our resources on our core automotive business,” company CEO Steve Burns said. “SureFly has been one of the most exciting products we've ever developed and reflects the best representation of the versatility of our innovative platform technologies. And while this new business will likely command a meaningful valuation, we believe the decision to spin off SureFly into a separate entity will better facilitate the long-term growth of both companies.”
The automotive company is expected to get $5 million in the spinoff through a note purchase agreement. Workhorse expects to grant SureFly a royalty-free, perpetual license to utilize the HorseFly drone except with respect to deliveries implemented from a ground-based vehicle focused on package express. At the time of the spin-off, Workhorse expects to enter into a transition services agreement with SureFly to provide certain engineering and accounting services not anticipated to be provided immediately by employees of the new company.
“We have improved the operational focus and financial outlook for Workhorse’s core business while creating new opportunities for our SureFly business,” Burns added. “This financing transaction is just the first step in the anticipated spin-off process and furthers our long-standing goal of maximizing value for our shareholders.”
SureFly says it is re-inventing the helicopter, making it safer, easier to fly and much more affordable than a conventional helicopter. Like a drone, the SureFly redundant design includes four propeller arms, two fixed contra-rotating propellers on each arm; and a backup lithium battery pack to drive the electric motors in the event of engine failure. The company has set a target price under $200,000 for the SureFly and is currently taking orders.
Workhorse plans to demonstrate the SureFly at Consumer Technology Association's CES in Las Vegas on Monday, Jan. 8.
SureFly’s hybrid design uses Workhorse’s battery pack, management systems and controls which are part of Workhorse’s commercialized range-extended battery electric road vehicles. The SureFly personal helicopter features a gas combustion engine generating electricity and a parallel battery pack offering a redundant backup power source, eliminating the need for long battery charging periods between flights. The aircraft is piloted by a joystick in a similar fashion to flying a drone. The SureFly is expected to carry pilot and passenger or cargo up to 70 miles before needing to refuel.
Early models will be pilot-operated, the company has said. Future models would be capable of autonomous flight, with payloads of up to 400 pounds, SureFly has said. Anticipated markets for the SureFly are precision agriculture, emergency responders, city commuters and military. The company is working toward full certification of the vehicle in late 2019.
Workhorse is a technology company focused on providing electric mobility solutions to the transportation sector. As an American OEM, it designs and builds high-performance battery-electric vehicles including trucks and delivery vans. The company also has developed cloud-based, real-time telematics performance monitoring systems that integrated with the vehicles with an aim to help fleet operators optimize energy and route efficiency. All Workhorse vehicles are designed to make the movement of people and goods more efficient and less harmful to the environment, according to the company.
SureFly is currently an indirect wholly owned subsidiary of Workhorse. As part of the spinoff, Workhorse expects to hold an undisclosed amount of SureFly common stock, some of which will be distributed to existing Workhorse shareholders. Third party investors, bringing new capital, will likely constitute the rest of the SureFly ownership, according to a WorkHorse announcement.
In connection with the anticipated spin off, Workhorse entered into a note purchase agreement with a group of existing, U.S.-based Workhorse investors. Under the terms of the note purchase agreement, Workhorse will issue notes with an aggregate principal amount of $5.75 million at a purchase price equal to $5 million. The notes are non-convertible, but are expected to be exchanged, ultimately, into new convertible preferred stock, and warrants to purchase shares of common stock of SureFly. The preferred stock will be convertible into shares of SureFly, Inc. common stock based on a pre-money valuation of approximately $33 million. The warrants will be exercisable into a number of shares of common stock equal to 30% of the shares issuable upon conversion of the convertible preferred stock and have an exercise price equal to 125% of the conversion price on the convertible preferred stock.
The spinoff transaction still needs regulartory approvals, inter-company agreements need to be finalized, along with debt and equity financing, and final approval from the board of directors, according to the WorkHorse announcement. The company said that a shareholder vote is not required for the transaction, which is expected to be completed by the end of 2018. The intent to spinoff the SureFly was filed with the SEC on Wednesday, Dec. 27.