ESS Tech, Inc., a manufacturer of long-duration iron flow batteries for commercial and utility-scale energy storage applications, and ACON S2 Acquisition Corp., a publicly traded special purpose acquisition company, have entered into a definitive agreement for a business combination that will result in ESS becoming a publicly listed company.
ESS was founded in 2011 with a mission to develop the cleanest, lowest-cost long-duration energy storage systems on the market. ESS developed an iron flow battery technology that is built to support the utility grid by enabling safe, environmentally-friendly, long-duration storage.
Unlike traditional lithium-ion batteries that are made from hazardous and costly materials, ESS’ patent-protected battery solutions use abundant iron, salt and water, making them environmentally safe and cost-effective energy storage systems.
The total addressable market for energy storage systems is expected to grow at a 34% CAGR from $8 billion in 2020 to $56 billion in 2027, driven primarily by growing deployments of solar and wind power, as well as a desire to increase the power grid’s resiliency.
ESS’ energy storage systems provide an optimal solution for utilities, independent power producers and microgrids seeking a reliable, safe and durable solution for four- to twelve-hour power storage that doesn’t degrade over time. That is the capability that ESS iron flow battery technology can deliver.
The business combination values the combined company at a $1.072 billion pro forma enterprise value. The transaction will provide about $465 million of pro forma net cash to the combined company, assuming no redemptions by ACON S2 shareholders.
Assuming no public shareholders of ACON S2 exercise their redemption rights, ESS’ existing shareholders, including its founders, will own approximately 64% of the combined company. As part of the transaction, ACON S2 raised a $250 million fully committed PIPE from institutional investors including Fidelity Management & Research Co., SB Energy Global Holdings Ltd, a unit of SoftBank Group Corp., Breakthrough Energy Ventures and BASF. In total, investors in the PIPE will own about 16% of the issued and outstanding shares of common stock of the combined company at closing. The net proceeds from this transaction will be used to increase manufacturing capacity globally and invest in extending ESS’ technology advantage.
The board of ESS and ACON S2 have unanimously approved the transaction. The transaction is expected to close in the third quarter.
