{"id":1186249,"date":"2020-05-25T09:29:44","date_gmt":"2020-05-25T14:29:44","guid":{"rendered":"https:\/\/oilandgas-investments.com\/?p=32532"},"modified":"2020-05-25T09:29:44","modified_gmt":"2020-05-25T14:29:44","slug":"red-hot-spacs-meet-renewable-green-energy","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=1186249","title":{"rendered":"RED HOT SPACs MEET RENEWABLE GREEN ENERGY"},"content":{"rendered":"

This might not seem like a very good time to bring a company public.<\/p>\n

But a small corner of the initial public offering (IPO) market is actually booming right now–and the biggest renewable energy company since Tesla (TSLA-NASD)<\/strong><\/span> is now involved.\u00a0 They’re called Special Purpose Acquisition Companies (SPACs).<\/p>\n

You may not recognize the term, but there have been several high profile ENERGY-related SPACs. Very few have worked out.\u00a0<\/p>\n

Maybe the most successful oil company SPAC was Mark Papa\u2019s Centennial Resource Development (CDEX \u2013 NYSE).<\/strong><\/span>\u00a0 In 2016 CDEV raised $500 million.\u00a0 While things recently went south (its now trades at under a buck), the stock did trade as high as $20 in mid-2018.<\/p>\n

One of the biggest flops in the SPAC world also came from the E&P world.\u00a0 Alta Mesa Corp (symbol was AMR-NYSE<\/strong><\/span> before bankruptcy) was a shale producer and midstream operator focused on the STACK formation in Oklahoma.\u00a0 But the stock fell flat on its face eventually filing for bankruptcy last year.
Alta Mesa has the added infamy of also being the largest SPAC by IPO proceeds \u2013 over $1 billion raised.<\/p>\n

Now we\u2019re seeing SPACs in renewable energy.\u00a0 Take VectoIQ Acquisition Corp (VTIQ \u2013 NASDAQ).<\/strong><\/span> \u00a0The stock price of this SPAC has risen by over 150% since the beginning of March.<\/p>\n

\"\"<\/a><\/p>\n

Source: StockCharts.com<\/em><\/p>\n

Investors piled into VectoIQ after they announced that they would merge with Nikola (as in Nikola Tesla), a private Arizona start-up developing a fleet of electric\/hydrogen fuel cell vehicles \u2013 semi-trucks, pickups and power sport vehicles.<\/p>\n

At the close of the transaction the surviving company, which will be called Nikola, will trade publicly on NASDAQ.<\/p>\n

\u00a0SPAC\u2019s: A Different Kind of IPO<\/strong><\/span>
\u00a0<\/h2>\n

VectoIQ\u2019s bid for Nikola is typical for a SPAC.\u00a0<\/p>\n

A SPAC is a large pool of money\u2014often $100 million or more–looking to merge with a private company and bring it public.<\/p>\n

Think of a SPAC as kind of a backdoor entry to the public markets.\u00a0<\/p>\n

Unlike a traditional initial public offering (IPO) a SPAC merger doesn\u2019t require a roadshow.\u00a0 There is no broker\/dealer underwriter.\u00a0 The SEC documents are not as extensive.<\/p>\n

For private companies not looking to raise new capital (or for those looking to cash out), it can be a preferable route to the public market.<\/p>\n

SPAC IPOs are gaining momentum.\u00a0 The number and dollar value of IPO\u2019s have been rising for 10 years.\u00a0 So far 2020 looks like another record breaker.<\/p>\n

\"\"<\/a><\/p>\n

Source: Euromoney<\/em>
\u00a0<\/p>\n

The SPAC Structure<\/strong><\/span>
\u00a0<\/h2>\n

VectoIQ, like all SPACs, went public at a price of $10 per unit (in May 2018).\u00a0 23 million units were issued for $230 million.\u00a0<\/p>\n

Also typical was the SPAC structure of shares and warrants.\u00a0 For VectoIQ, each unit consisted of one share and one warrant.\u00a0 The warrants gave investors the ability to purchase a share at $11.50.\u00a0<\/p>\n

Each SPAC comes out with a share and warrant IPO and most price the warrants at $11.50.\u00a0 The variable is usually warrant fraction.\u00a0 Sometimes investors get a full warrant, sometimes they get half, sometimes less.\u00a0 It all depends on demand for that SPAC.<\/p>\n

After the IPO, the shares of VectoIQ did nothing for almost two years.\u00a0 The company was just a shell, holding cash in short term treasuries.<\/p>\n

But behind the scenes the managers of the SPAC were looking for a deal.\u00a0 When they found the right one (Nikola), they made it happen.
\u00a0<\/p>\n

The Rules of SPACs<\/strong><\/span><\/h2>\n

\u00a0
SPACs are also called blind capital pools or \u201cprivate investment public equity\u201d (PIPES).\u00a0 The SPAC is usually run by private equity sponsor who is already neck deep in deal making.\u00a0<\/p>\n

The word \u201cblind\u201d is appropriate.\u00a0 At the time of the SPAC IPO, investors do not know what the deal might be (in fact it would be illegal if they did).<\/p>\n

So why would someone invest blindly?\u00a0<\/p>\n

It comes down to the SPAC rules.<\/p>\n

First, the SPAC has a deadline to find a deal.\u00a0 Maximum of 3 years but usually capped at 24 months.<\/p>\n

If the SPAC does not find an acquisition in that timeframe the investors get their money back \u2013 with interest.\u00a0<\/p>\n

Second, if you don\u2019t like the acquisition, you can ask for your money back.\u00a0<\/p>\n

At the time of merger (this is called the De-SPAC transaction), the SPAC is required to offer SPAC shareholders the option to redeem for $10.<\/p>\n

Again \u2013 no harm, no foul.<\/p>\n

Hedge funds like SPACs because they are what is called \u201ca free carry\u201d.\u00a0 That is to say \u2013 a free shot on goal with an opt-out clause.\u00a0<\/p>\n

But the biggest winners in a SPAC are the founders \u2013 also called the sponsors.\u00a0 They manage the IPO and look for the deal \u2013 and in return they usually get 20% of the SPAC shares \u2013 for free!<\/em><\/p>\n

It is a sweet setup, but only if they get a good deal. Which means their interests are aligned with investors.<\/p>\n

But it does create a hurdle \u2013 any deal the SPAC finds needs to overcome this 20% free ticket for the founder.<\/p>\n

Some of them do.<\/p>\n

\u00a0Nikola Nuts and Bolts<\/strong><\/span><\/h2>\n

\u00a0
At the close of the transaction between VectoIQ and Nikola the share structure will consist of:<\/p>\n