Investors Thursday handed a blank check for nearly $1 billion to a New York investment firm and a retired energy CEO turned theology student so they can hunt for an oil business to buy.
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In staking Silver Run Acquisition Corp. II, investors are hoping that Riverstone Holdings LLC, the energy-focused investment firm, can repeat the success of a similarly named entity it launched last year with another big-name oil executive.
That blank-check company, led by Mark Papa, who earlier built an Enron Corp. castoff into one of the largest U.S. oil producers, last year raised $500 million. It put the cash toward buying a pair of closely held West Texas oil producers. Now known as Centennial Resource Development Inc., its shares have been among the energy industry's best performers, up 71% since the February 2016 listing.
Investors in the latest Riverstone endeavor are betting on the second-act of James Hackett, who transformed Anadarko Petroleum Corp. (APC) from an oil patch also-ran into one of the world's largest energy explorers before retiring in 2013 to pursue a theology degree at Harvard Divinity School.
Thursday's stock sale, which raised $900 million, was the largest of its kind in a decade, according to Dealogic. It will exceed $1 billion and tie the record for the largest blank-check offering if the banks managing the deal exercise options to buy shares, which they often do in such transactions.
Blank-check companies, also called special-purpose acquisition companies, or SPACs, start with no assets and sell shares to raise cash that they then use to make acquisitions. They've traditionally attracted hedge funds willing to make speculative bets on specific deal makers, but these days bankers say they're pitched to a broader swath of investors.
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Centennial's surging shares have made energy investors particularly bullish on this style of deal making.
Kayne Anderson Capital Advisors LP, a Los Angeles private-equity firm focused on pipelines, filed paperwork earlier this month to raise as much as $402 million for a blank-check company. Last month NGP, a Dallas firm known for staking wildcatters, said in filings it would seek $460 million.
In a SPAC that could rival those of Riverstone for star power, TPG is in talks to launch a blank check company headed by former Occidental Petroleum Corp. (OXY) CEO Stephen Chazen, according to people familiar with the discussions.
Riverstone's Thursday offering more than doubled in size from the $400 million the deal makers first proposed in securities filings three weeks ago, showing investor enthusiasm but also raising a question about how much demand will remain.
SPACs were a hallmark of the frothy days before the financial crisis, but fizzled in its wake. Some big blank-check companies, such as Nelson Peltz's Trian Acquisition I Corp., which raised $920 million in 2008, were unable to make acquisitions within the customary two-year time period, forcing them to fold and give cash back to investors.
SPACs have come back in recent years, though. Since 2015, investors have given nine-figure blank checks to well-known deal makers to pursue acquisitions in consumer products, tech and chemicals. Last year, a SPAC acquired Twinkie-maker Hostess Brands Inc. after it went public. Earlier this month a blank-check company launched by TPG acquired a chain of Caribbean resorts.
SPACs have their risks beyond the uncertainty of what businesses they'll buy. Investors face the possibility that their cash will be locked up for two years with no results. Energy investors face particular challenges with oil prices hovering around $50 a barrel: The number of regions where drilling is economical are limited and prices for assets, such as drilling land in the Permian Basin in West Texas, have soared.
SPACs offer some advantages to big energy investors, bankers say. For one, they give private-equity firms the cash to pursue large purchases without risking too much of their fund investors' cash in any one deal. They are also a quick way to list closely held companies and businesses carved out of big corporations on stock exchanges where they can then raise additional cash to grow. And sellers sometimes are willing to take discounts to cash out of investments completely, rather than risk slower exits through their own IPOs.