Last night, we finally got a glimpse of the previously announced Switchback Energy Acquisition Corp. (SBE.U). Switchback filed as a $300 million North American energy SPAC and will be sponsored by NGP Energy Capital Management. For those unfamiliar with NGP, they are considered one of the best, if not THE best, energy-focused private equity firms. Additionally, this will be NGP’s second SPAC, having also sponsored the recently liquidated Vantage Energy.
Looking at the team, Switchback will be led by Scott McNeill, as CEO, CFO and Director, and Jim Mutrie, as Chief Commercial Officer, General Counsel, Secretary and Director. Previously, Scott McNeill was CFO of RSP, through its merger with Concho last July, in a $9.5 billion all-stock acquisition. That deal created the largest unconventional shale producer in the Permian Basin with 640,000 net acres and 27 rigs at work. And to further shed light on NGP, they “have a family of private equity investment funds with $20 billion of cumulative equity commitments organized to make direct equity investments in the energy sector.” NGP’s fund XII, which raised $4.3 billion, will be Switchback’s sponsor. Finally, the Switchback team has two board members with SPAC experience – Scott Gieselman, who served as a director of Vantage Energy (VEAC), and Joseph Armes, who was CEO, CFO and director on Hicks Acquisition Company I, Inc. If you recall, Hicks I (a 2007 SPAC) combined with Resolute Energy in 2009.
So clearly, this team has the energy chops. However, is an energy SPAC a good idea right now? Vantage Energy (VEAC), which was another NGP sponsored energy-focused SPAC that raised $552 million, just recently threw in the towel and decided to liquidate rather than pursue a combination. Sentinel Energy (STNL) had their definitive agreement terminated with Strike Capital, citing market conditions. And while the traditional IPO window is, for the most part, shut to energy companies, the SPAC route is not quite shut, but it’s also not totally open either (so far).
However, that’s why you need a good team and presumably this team will be able to get it done. So while there is a lack of investor appetite for upstream equity, midstream has seen tremendous interest from private equity investment. So perhaps this SPAC team has been studying the market and reviewing pipelines while on the beach post-Concho sale.
Nevertheless, looking at this SPAC’s structure we see A++, tier-1 terms. Not only is Switchback asking for a 1/3 warrant, but they also want 24 months + 3 more months if they have an LOI or definitive agreement on file. Plus, they’ve also included the warrant call for shares at $10.00. This is similar to Churchill II’s terms, but at least the Churchill II team already had a successful SPAC combination to point to with Clarivate (CCC). Switchback’s terms on the other hand, feel like a tough sell to SPAC investors for a first time SPAC team in a partially out-of-favor sector. But just like Conyers Park II, maybe they’re not planning on selling this IPO to SPAC investors……
As was referenced in this week’s newsletter, a different class of investors has been getting involved in the Tier-1 SPACs as of late, so there is a chance this deal is going to get sold to “non-traditional” SPAC players, or fundamental investors, who are willing to take the risk. This article, “Private Equity Continues to Bet Big on Midstream” kind of says it all. Switchback could wind up being another indicator of “Peak SPAC”. We’ll have to keep an eye on this one, but then again, we now have nine SPACs in the queue to IPO in July…there’s a whole lot to keep an eye one. July could be a defining month.
Summary of terms below: