Apollo Debuts Their $400 Million SPAC with Spartan Energy

This is Spartan

Apollo Debuts Their $400 Million SPAC with Spartan Energy

Jul 22, 2018 INTEL by Kristi Marvin

If only this were a $300 Million SPAC, the “300” movie reference would tie together so nicely…

Spartan Energy Acquisition Corp., filed for a $400 million SPAC early Friday evening, confirming one of the two rumors of “big SPACs coming” (the other being Chinh Chu’s).  And While Spartan Energy does not technically have “300” battling for an energy company, they have something better….Apollo Global Management.

Apollo, the private equity firm founded by Leon Black in 1990, manages over $247 billion as of March 2018, making Apollo the second largest US-based alternative asset management firm.  In addition, Spartan’s Chief Executive Officer will be Geoffrey Strong, a Senior Partner at Apollo and currently serving on the Boards of no less than 11 energy companies.

Rounding out the team are James Crossen, who is currently CFO of Private Equity and Natural Resources at Apollo, and James Beard, who is Global Head of Natural Resources and a Senior Partner at Apollo as well.  The fourth team member, Robert Reeves (Independent Director), while not a member of Apollo, previously served as Athlon Energy’s Chairman, President, and CEO.

This is a solid team.  I also found the team all the more notable since none of them went to an Ivy League undergrad school – Western Oregon University, University of Connecticut, University of Illinois at Urbana, and University of Kansas, respectively. Frankly, I find that more impressive than if they all went to Harvard or Yale. It means they had to hustle and work that much harder to get where they are in Finance today, which as an industry seems to put a massive premium on pedigreed individuals – justified or not.

My favorite part of this SPAC might just be the symbols though….SPAQ.U, SPAQ and SPAQ.WS.  Brilliant.  I was wondering when someone would grab those tickers and it fits nicely with the Spartan name to boot.

Looking at the structure, Apollo is functioning as Sponsor, Underwriter and Forward Purchaser (backstop). This is an Apollo SPAC from front to back.  As sponsor, Apollo has committed to purchasing 6,666,667 warrants at a price of $1.50 per warrant for a total of $10 million.  Plus, as Forward Purchaser, under the auspices of Apollo Natural Resources Partners II, L.P.  or “ANRP II”, they have agreed to purchase up to 30 million units at $10.00, or $300 million total. Furthermore, Apollo Global Securities, is on the cover as co-manager. All told, Spartan could potentially have $700 million to use to make an acquisition and this is before we can even consider up-sizes.  Which brings me to my next point…

This deal is going to be hot and some of you may be asking, why only $400 million?  Well, it means the underwriters and this team are executing a brilliant marketing strategy.  By going out with only $400 million, there will be massive demand relative to its size which means Spartan can then up-size the deal in the next filing or so, thereby confirming and signaling said demand to the rest of the market.  Which then builds even further demand! My prediction? This deal gets up-sized to $500+ million in the next S-1/A and then at pricing, we see a further 20% up-size at pricing thanks to rule 462(b).  Very similar to the Far Point playbook, of which Credit Suisse was also a bookrunner.  So, my gut tells me this strategy came from CS. No confirmation, just a hunch, but I like it. Optically, it looks great.

Lastly, there is a whole section on conflicts of interest given that Apollo is functioning in so many different capacities in this deal, but as we’ve seen with the GS Acquisition Holdings SPAC, investors seem unconcerned given the risk/reward opportunity.  However, it should be noted that since three of the four Spartan team members are still working at Apollo, there IS a conflict of interest in deciding which entity gets first dibs on any potential acquisitions.

Below I’ve listed a summary of terms, but you can also find the Spartan Energy profile page here.

Summary of terms are as follows:
  • Focus:  Energy (North America)
  • $10.00 unit comprised of one share class A common stock , one-third of a full warrant
  • Warrant call for redemption threshold: equals or exceeds $18.00 (cash or cashless exercise)
  • Limitation on redemption rights:  20%
  • 100% held in trust ($10.00 per share)
  • 24 months to complete an acquisition 
  • Sponsor purchase of private placement warrants at $1.50 per warrant
  • Underwriting fees: 2.0% / 3.5% deferred
  • Bookrunners:  Citigroup, Credit Suisse