SPAC to the Future: Special Purpose Acquisition Companies in the Oil & Gas Capital Landscape
Special Purpose Acquisition Companies (“SPACs”) have always been a component of the oil and gas capital landscape. Given the current tightness in the capital-raising environment and availability of quality assets for sale, SPACs have seen a resurgence of popularity. Private equity funds and other financial investors are sponsoring well-known management teams to enter the public market expediently using SPACs.
Special Purpose Acquisition CompanyA SPAC is a publicly-traded company that uses initial public offering (“IPO”) proceeds to fund a known private acquisition or an unknown target to be determined after fundraising. Also called a “blank check company,” the SPAC typically has no other activity or operations, therefore is 100% focused on an acquisition or merger.
IPO’s typically consist of units that are composed of both shares and warrants. At least 90% of the IPO proceeds are placed in trust and the SPAC management has a strict deadline to complete a transaction. With no ongoing or historical operations, SPACs are simpler than a traditional IPO, although a registration S-1 is still required by the SEC.
Further, according to SPAC rules, 80% of the IPO proceeds must be deployed in the first acquisition or merger. SPACs allow public investors to participate in what is usually private equity activity, for example, leveraged buyouts.
Oil & Gas SPACsIn the past eighteen months, $3.5 billion of capital has been raised via SPACs with well-known management teams.
SPAC IPOs kicked off last year with Riverstone’s Silver Run Acquisition Corp. The company completed a $500 million IPO, including overallotment. In July 2016, retired EOG CEO Mark Papa led the company in the acquisition of Centennial Resource Development, Inc., focused on the Delaware Basin. A second Silver Run Acquisition Corp underwent an IPO in March 2017, raising $1.035 billion, including overallotment. This large SPAC is headed by former Anadarko CEO Jim Hackett.
April 2017 was a busy month for oil and gas SPACs. Kayne Anderson chose former Williams executive Robert Pugason to lead Kayne Anderson Acquisition Corp.’s $350 million IPO. NGP tapped former Encana President Roger Beimans to run its Vantage Energy Acquisition Corp., which raised $480 million. Finally, KLR and Rosemore teamed up with Tema Oil and Gas managers to create Rosehill Resources in a $445 million deal. Rosehill is focused on the Delaware Basin.
In May 2017, TPG formed TPG Pace Energy Holdings which raised $650 million, including overallotment.