By Ryan Dezember and Maureen Farrell
Investors handed a blank check for $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.
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 72% 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. from an oil patch also-ran into one of the world's largest
energy explorers before retiring in 2013 to get a theology degree
at Harvard Divinity School.
The stock sale, which launched Thursday and raised a little over
$1 billion, including shares that the banks managing the deal
bought, tied the record for the largest blank-check offering set a
decade ago, according to Dealogic. The stock gained 3.6% Friday in
its stock market debut.
The Silver Run shares gained 3.6% in their stock- market debut
Friday, an unusual move in the early days of such a company.
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 traditionally
have attracted hedge funds willing to make speculative bets on
specific deal makers, but these days bankers say they are pitched
to a broader swath of investors.
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. Chief Executive 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 investors' enthusiasm but also
raising a question about how much demand will remain.
Mr. Hackett joined Riverstone as a partner right after leaving
Anadarko, juggling his studies with his duties as a member of the
committee that vets deals and makes investment decisions for the
firm.
In an interview Friday, he said the SPAC will look for
acquisitions in the U.S. and Canada, favor oil over natural gas and
consider pipeline businesses. He said he might be the CEO, but he
is also open to being chairman if the acquired company comes with
strong management that wants to stay on. Oil prices, roughly double
what they were at the depths of the bust, are in a sweet spot for
deal making, Mr. Hackett said.
"If people feel the price is much too low and it will recover
quickly, which is where we were a year and a half ago, the
bid-offer spread gets too wide and activity starts to drop," the
63-year-old said.
In those circumstances, he said, "people want to hold onto
things."
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.
In recent years, though, SPACs have come back. Since 2015,
investors have given nine-figure blank checks to well-known deal
makers to pursue acquisitions in consumer products, technology 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 bought a chain of Caribbean resorts.
SPACs have their risks beyond the uncertainty of what businesses
they would 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 initial public offerings of stock.
Banks that worked on the deal included Citigroup Inc., Credit
Suisse Group AG, Deutsche Bank AG, and Goldman Sachs Group Inc.
Write to Ryan Dezember at ryan.dezember@wsj.com and Maureen
Farrell at maureen.farrell@wsj.com
(END) Dow Jones Newswires
March 24, 2017 18:51 ET (22:51 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.