Silver Run Acquisition Corp SRAQU.O, a new US investment vehicle, raised a greater-than-expected $450 million in an initial public offering on Tuesday aimed at funding the acquisition of energy companies, indicating investors see bargains amid the oil price rout.
The shares of many energy companies have been battered in the last 18 months as an oil supply glut has weighed on their prospects. Silver Run's IPO shows that some investors believe the sector's corporate valuations have reached bottom.
In the largest IPO so far this year in the United States, Silver Run said it had priced 45 million shares at $10 each, selling 5 million more shares than it originally planned.
Silver Run is a blank-check acquisition company sponsored by energy-focused private equity firm Riverstone Holdings LLC. Such so-called special-purpose acquisition companies (SPACs) fund the equity portion of their acquisitions through stock issuance.
Silver Run will look for companies that are "fundamentally sound" but under-performing due to current commodity prices, according to its IPO prospectus.
So-called secondary market investors are already placing bets that mergers and acquisitions will pick up in the oil patch by snapping up shares sold by publicly listed energy companies that could use the money to acquire assets at a discount. Silver Run's offering illustrates that SPACs can successfully make a similar pitch to IPO investors.
"(Secondary market) investors are participating in follow-on financing that make already strong companies stronger, enabling them to withstand even lower commodity prices or potentially even allowing them to play offense," said Americas equity capital markets head at Bank of Montreal Michael Cippoletti.
Silver Run's chief executive officer, Mark Papa, is an oil and gas veteran and Riverstone partner. He has worked for 45 years in the space, 15 of which were as CEO of EOG Resources Inc, once a division of Enron. Papa shifted EOG's focus from gas to oil, and is credited with transforming EOG into one of America's biggest oil companies.
Shares in Silver Run are expected to start trading on Wednesday and list on NASDAQ under the symbol "SRAQU".
Deutsche Bank Securities, Citigroup and Goldman, Sachs & Co were underwriters on the offering.
