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Spotlight on SPACs: Going nuclear

Power company provides glowing example of successful de-SPAC 

Not all special purpose acquisition companies are doomed to fail. The odyssey of Spring Valley Acquisition shows that beaten-down SPACs can still find success when the chips are down.

In October, Spring Valley terminated its agreement to merge with AeroFarms, a New Jersey-based vertical farming company, vaguely stating the deal was “not in the best interests of shareholders.” Its stock, then down 15%, became yet another negative data point in the beleaguered SPAC market, which fell out of favor with investors in mid-2021 as regulators closely scrutinized the asset class.

Two months later, Spring Valley dusted itself off and found a new target: Portland, Oregon-based nuclear power startup NuScale. To some, the deal may have appeared dubious. Nuclear energy, after all, had been shunned by investors and central planners ever since the Fukushima nuclear disaster in 2011 — the worst such accident since Chernobyl in 1986.

But with the soaring costs of fossil fuels and government directives to utilize carbon-free energy, nuclear power is experiencing a renaissance. Policy makers in Asia, Europe and the US, who planned to decommission nuclear power plants, are now reversing course, electing to keep more of them operational. Officials are also pledging to build new reactors to combat climate change and reduce reliance on oil and gas imports from Russia, the Middle East, and other adversaries.

Enter NuScale, which is developing advanced small modular reactors (SMRs) that the US Department of Energy says offer low initial capital investments, impressive scalability, and siting flexibility for locations unable to accommodate traditional nuclear plants. Moreover, the US agency says SMRs have the potential to be safer and more secure than their predecessors.

Financial and strategic investors quickly lined up to support Spring Valley’s combination with NuScale, initially committing USD 181m in an oversubscribed private investment in public equity (PIPE) deal. Investor demand grew so strong the PIPE eventually swelled to USD 235m, which is more than what Spring Valley raised in its IPO and well beyond the minimum cash condition needed to close the deal. Nucor [NYSE:NUE], DS Private Equity, SailingStone Capital Partners, Samsung C&T, Segra Capital Management and Pearl Energy Investment Management all invested in the PIPE.

Last week, the merger agreement was approved with 37.5% of shareholders electing to redeem their shares — the lowest redemption rate in 2Q and second lowest redemption rate in 2022.

The low redemption rate helped drag down the quarter’s average rate to under 70% — a notable improvement from the more than 81% average redemption rate in 1Q, according to Dealogic.

NuScale [NYSE:SMR] successfully de-SPAC’d from Spring Valley on Tuesday, realizing a valuation of USD 1.9bn and putting USD 380m in cash on its books. The stock closed at USD 10.55 — a more than 5% pop from its opening price. It traded at a similar price after hours Wednesday.

Fluor [NSYE:FLR], which bought a majority stake in NuScale for USD 30m in 2011, rolled 100% of its equity into the newly formed company along with the nuclear energy startup’s other longtime investors. Fluor, which has invested USD 600m to support NuScale’s technology, retained 60% ownership in the startup following Tuesday’s de-SPAC transaction.

Established in 2007 with technology developed at Oregon State University, it is still early days for NuScale. While the company has reported increased interest in its technology from utilities and foreign governments, it has not yet deployed its reactors. The first power plant that plans to use its reactors is expected to be built in Idaho toward the end of the decade. The project still has multiple regulatory hurdles to clear to demonstrate its technology works as promised.

In all, NuScale has 20 memorandums of understanding with global partners like KGHM [WSE:KGH] in Poland and Nuclearelectrica in Romania where it hopes to deploy its SMRs, according to a company investor deck. NuScale also has investors in Japan and South Korea.

As it marches toward commercialization, NuScale demonstrates there is still investor appetite for the right SPAC combinations, even speculative ones that don't yet generate revenue.

In other SPAC News:

  • Oyster, a human resources software company, plans to prepare for a public listing when the stock markets look more favorable, co-founder & CEO Tony Jamous said. The company, which last month raised USD 150m in Series C capital at a valuation north of USD 1bn, has held informal talks about the prospect of an initial public offering with “the usual suspects” of investment banks, he said. Oyster has not been approached by SPACs since it was founded in January 2020, Jamous said, but it could entertain a business combination with one in the future. Still, Oyster would need to research the vehicle more, he noted. “We are playing a long-term game and are not looking for a short-term cash out,” the CEO added.
  • Policygenius, a consumer insurance marketplace, could consider going public next year, though “everything is on the table,” said co-founder and Chief Executive Officer Jennifer Fitzgerald. The company, which has dual headquarters in New York City and Durham, North Carolina, would want to have scale, profitability and a predictable performance for six to eight quarters before considering the public markets, Fitzgerald said. She declined to comment on a Bloomberg report from July 2021 that Policygenius was negotiating a listing via a merger with blank-check company PWP Forward Acquisition I [NASDAQ:FRW]. “What I can tell you is, like any late-stage private company at our scale, last year, we were exploring all the paths for capitalizing companies – be it a private route or be it a public route,” Fitzgerald said. Remaining private was the best option due to the volatility that hit the market in the second half of 2021, she said.
  • TytoCare, an Israeli telehealth medical device and software company, is likely to consider an IPO in the US later next year or in 2024, said Dedi Gilad, CEO and co-founder. TytoCare, which has raised USD 154m from investors since founding a decade ago, could raise a Series E capital round of undisclosed size prior to an IPO, Gilad said. A trade sale to a strategic, such as a technology company or healthcare payer, could also be among the exit options, he added. The company is not seeking a sale to a SPAC, he said, declining to be more specific.