Top 3 SPAC Targets – Energy Infrastructure

SPACInsider contributors Anthony Sozzi and Sam Beattie this week compiled their three favorite potential SPAC targets among companies operating or building out energy infrastructure. We look at why they are compelling and why each could be a fit for a blank-check merger.

As summer turns to fall, energy is going to be under focus in the coming months like never before. Not only are energy prices a major upstream cause of stubborn inflation rates, but consumers are beginning to look ahead to a winter that will be chilly and expensive as Western countries attempt to wean themselves off of Russian energy exports in short order.

The average wholesale electricity prices in Europe have already more than doubled and they are expected to quadruple or more moving into the fourth quarter of 2022. Both the EU and individual European countries have put forward a number of policy changes to ease the burden.

Some of these, like price caps and new taxes on windfall profits are not exactly boons to the energy producers working to make up the supply deficits. But, it is nonetheless clear that demand is going to be there for energy companies and at least some profitability is assured in any case increased over the near term.

Much of this activity may be driven by near-term concerns, but there are hopes that Europe will come out of its winter of frigid discontent significantly more self-reliant from an energy standpoint. Some of these efforts have run into fresh new geopolitical problems.

European Commission President Ursula von der Leyen in pledged this summer to gradually double the EU’s natural gas imports from Azerbaijan to partially make up the difference. Things are now awkward as the Caspian Sea petrostate launched a military incursion against its neighbor Armenia this week.

The two countries have territorial disputes, and, with Armenia’s sole ally Russia distracted and overstretched in Ukraine, Azerbaijan appears to have decided that the time was ripe. This new gas deal could limit the amount of influence the EU will be able to assert towards ending this fresh new conflict.

Ignis Group

If SPACs want to have a hand in backing Europe’s existing winners in the green energy space, Ignis has to be on their list.

The Madrid-based company has a portfolio of about 7,000 MW in solar projects that it has built under a number of different structures. Ignis will build solar plants, handle their power management as well as their commerce with the electrical grid.

And, while it handles much of this work as a service firm, it has ben an owner-investor in plants as well. It has acquired at least seven natural gas peaker and cogeneration plants since 2015 and sold a 3,300 MW pipeline of solar projects to Total (NYSE:TTE) in 2020.

This has grown its own revenue in short order from just €2 million in 2016 to €130 million in 2020. It has also brought in $734 million in outside capital and was last valued in an October 2021 raise at €1.28 billion. At the time, that equated to roughly $1.5 million, but now would convert to $1.27 billion.

As such, there is not only a clear demand uptick case for Ignis, but also a rare opportunity for value with the dollar stronger against the euro in the current market. This seems particularly a chance for the RMG III (NASDAQ:RMGC) team to triple down renewable energy with its estimated $483 million trust following its former deals with battery-maker Romeo Power and Indian renewables developer ReNew (NASDAQ:RNW).

CapeOmega

But, if SPACs want to play a role in investing in the current crisis’ vulnerabilities, they will have to look at natural gas.

Bergen, Norway-based CapeOmega holds a 26% stake in Norway’s Gassled gas transport system and a 28% stake in the Norway’s Polarled pipeline. The latter of these feeds from the Ormen Lange field and Aasta Hansteen platofrm in the Norwegian Sea to the Nyhamna processing center.

Nyhamna is a joint venture that CapeOmega holds a 18.2% stake in, with the rest of the equity held by Equinor (NYSE:EQNR), Petoro, Shell (NYSE:SHEL), Ineo, OMV (VI:OMV), North Sea Infrastructure, Total, and ConocoPhillips (NYSE:COP). This constellation of fields is a part of the Norwegian Continental Shelf, which supplies about 27% of Europe’s gas demand – a proportion one would expect to increase in the near future.

All of this positions CapeOmega as a company expected to net an increased passive take on the resources flowing through the infrastructure it co-owns. But, the revenue it takes from this work is also predictable and likely comes with decent margins, although it has not yet publicly disclose this in detail.

It already has forged ahead with its own growth initiatives, however, purchasing two LNG shipping vessels that already have long-term charters agreements with Shell and will be delivered over the next year. Nabors Energy Transition (NYSE:NETC) could be the team to take CapeOmega to the next stage with energy veterans among its management.

Generate

SPACs like to think big and although no transaction has run above a $3 billion enterprise value since Goldenstone’s (NASDAQ:GDST) $3.6 billion combination with Roxe in June, Generate could be the next big one.

San Francisco-based Generate has been on a rocket-like trajectory since its founding in 2014, having raised over $3 billion in private capital and growing to a $3.2 billion valuation in a July 2021 raise backed by CBRE Caldedon and pension fund AustralianSuper among others. It has put that into about 2,000 energy assets globally and 40 partnerships with technology and project developers.

It provides both a funnel of building services and financing for renewable development, describing its offering as infrastructure-as-a-service, indicating a recurring revenue model. This does not come down to just project loans. In June, it invested $500 million into Pine Gate Renewables to help it fund its next projects, and put up $200 million in financing as a part of its acquisition of organic waste management firm Atlas Organics in January.

While Generate has been well capitalized thus far, it may now be at a stage where it would prefer to not further dilute itself on the private markets to make deals happen with public share capital. It builds a mix of sustainable power generation, charging stations, as well as waste management and energy capture activities from landfills. It has lately expanded into financing options into fiber broadband infrastructure projects and smart cities upgrades.

All of these appear poised to receive boosts from the Biden administration’s recent stimulus policies and its team already seems prepared for a the rigors of a public listing. It already has four members of its management team focused specifically on capital markets including Morgan Stanley vet Edward Bossange who serves as the managing director of the group.