Energy Transition SPAC: From the Permian to EV

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Success for the special purpose acquisition company (SPAC) structure has been mixed in the energy space, as well as in all industries. But two oil and gas veterans may have found the right approach: using the vehicle to drive energy transition firms into the public sphere.

Switchback II Corp. co-CEOs Scott McNeill and Jim Mutrie have bottled lightning for a second time in less than two years.

The pair is on the precipice of combining their second SPAC venture, Switchback II, with Bird Rides Inc., a firm focused on shared short-range electric transportation. The transaction will expose Bird to public trading with an implied value near $2.3 billion. At press time, shareholders were voting on the deal.

The Bird combination comes one year after the first SPAC, Switchback Energy Acquisition Corp., made its acquisition, which took electric vehicle charging network ChargePoint Inc. to public markets as a $2.4 billion enterprise.

McNeill said at the time that the overall charging infrastructure investment business could be valued at $190 billion by 2030.

McNeill and Mutrie have been working together for more than two decades. Most recently, the pair were part of the executive team at Permian Basin-focused RSP Permian Inc. that Concho Resources Inc. bought in 2018 for $9.5 billion.

‘Disruptive technology’

They modeled their business thesis largely on what they learned at RSP Permian, which was the value of disruptive technology, Mutrie said. “We started looking more into energy transition and saw the investor sentiment, the popular sentiment, shifting.”

We started looking more into energy transition and saw the investor sentiment, the popular sentiment, shifting.” —Jim Mutrie, Switchback II Corp

Technological advances in the energy transition have transformed projects that were uneconomic a decade ago into suddenly economic propositions.

“We saw the kind of the future there that—with the right company—could really have some upside potential,” Mutrie said.

RSP Permian was a $250 million firm when it filed its IPO in 2013. “The IPO was an opportunity to really utilize this disruptive technology to exploit the [Permian] asset base and to continue to build it,” McNeill said.

The pair went from investment banking and law to corporate managers. “That’s what really gave us this nice skill set, alongside [private equity partner] NGP, to form a SPAC and go after the energy transition opportunities that were out there,” McNeill said.

Real, not ‘science projects’

Switchback’s investment criteria were developed before the SPAC decided to fully shift to the energy transition space. Initially, outsiders may have thought Switchback I would buy in the traditional energy space.

It found new opportunity in alternative energy, instead.

“The first one is there is a large, addressable market. You need to have the right public company and the right management team,” Mutrie said. “We don’t like to fund science projects.”

The pair wants to work with real companies with real revenues that are nearing a real inflection point, he said. Many companies get close to meeting the criteria, but they lack the right infrastructure.

McNeill said, “They’re just a little bit early before hitting the public markets. And I think that’s where, being public company executives, I think we can help identify those companies that are really viable public market candidates.”

The partners understand firsthand that, from start to finish, these transactions are not easy. The elements need to align with the right assets, the right opportunity, the right valuation and the right audience of investors, McNeill said.

Relationships are also important, and as such, the pair partnered with NGP, a 33-year investor in traditional energy and 15-year investor in alternative energy.

Mutrie said, “Very few private equity firms have been in the energy transition space for that long.”

Investing in the transition is a growth model. McNeill said, “[Oil and gas] investors have been looking for a return of capital, and they’re not really in a growth mode. They’re more in harvest mode.

“What we’re really providing in a SPAC is growth capital. And I think from the energy transition space, obviously there’s going to be a lot of capital that’s going to be spent in a lot of these companies that are on their growth ramp.”

Sticking to the plan

There is room in the SPAC space for traditional energy companies as well as energy transition endeavors, Mutrie added. Both can coexist and each has the potential to grow over time.

Investors are demanding that companies adopt a return of capital mindset, regardless of the resource focus.

Still, the SPAC market is evolving, and it has changed since Switchback’s first filing in 2019, he said. “It seems like in the SPAC world that the space gets so hot and, frankly, probably a little overheated.

“I think the pendulum swung too far into ‘the SPACs are the greatest thing in the world, and everyone should be successful,’” Mutrie said. “Maybe it’s somewhere in the middle now.”

Switchback’s early insistence that it wasn’t funding science projects is “what every SPAC should be looking at: businesses that are established, generating cash.”

Like ChargePoint fit Switchback I’s model, McNeill said Bird Rides made a good candidate for Switchback II in several ways. Its solid management team found a large, addressable market and quickly became a market leader in a category that, in Bird’s case, it had essentially created.

Bird operates in 350 different cities and consistently introduces new products.

“It’s a pretty new sort of sector in the economy, and they did $150 million of revenue in Year Two. The next year, it was about $400 million in revenue,” McNeill said.

“If a company is at that point in time where they are in the inflection, and they’ve got a very defensible business plan and a management team that’s going to be successful in the public markets, those are the things that we’re going to be interested in,” he said.

“Bird very much fit.”