Daniel Rice-led SPAC Forms Leading Renewable Natural Gas Platform in Billion-dollar Merger

Rice Acquisition Corp., a blank-check company headed by Daniel Rice, has agreed to a business combination worth over $1 billion that it says will create the industry-leading renewable natural gas platform focused on the capture and conversion of waste emissions from landfills.

“Early in our acquisition search we identified landfill gas (LFG) as the most predictable, cost-effective, and environmentally beneficial feedstock to help organizations achieve their carbon neutrality goals,” said Rice, who serves as CEO of Rice Acquisition Corp., in a statement on April 7.

Last year, landfills in the U.S. produced about 1.9 Bcf/d in LFG emissions, roughly comprising of 50% methane and 35% CO₂. However, U.S. landfills are projected to grow to 13 billion tons of waste in place by 2050 from about 8 billion in 2020, which the Rice team said is expected to boost LFG emissions to 2.8 Bcf/d by 2050.

Rice Acquisition Corp., a special purpose acquisition company or SPAC, formed late last year with the intention of finding a target business in the broadly defined energy transition or sustainability arena. In addition to Rice, the company is headed by former executives of both Rice Energy and EQT Corp.

Rice, who led Rice Energy’s start-up to its eventual sale to EQT in 2017, said the group became determined to create a leading renewable natural gas (RNG) platform. He added that he believes that the company’s business combination announced April 7 with Aria Energy LLC and Archaea Energy LLC goes beyond that.

“I think we’ve created a new paradigm in RNG development,” he said. “The combination of these companies’ respective skills and assets instantly creates a proven, technology-driven LFG developer that’s operating at scale today with a deep inventory of highly economic, low-risk growth projects to meet the ever-growing RNG demand.”

Capturing LFG emissions, according to a release by Rice Acquisition Corp., has the same environmental benefit as electrifying 75% of U.S. passenger vehicles. Further, the company said that LFG-to-RNG is lower cost, more predictable, better for the environment and more effective in reversing the impacts of climate change when compared to other renewable fuels.

Aria Energy, a portfolio company of funds managed by the Infrastructure and Power strategy of Ares Management Corp., is a market leader in the North American LFG sector, having developed or constructed more than 50 projects over the last 25 years.

Meanwhile, Archaea has helped design, build, or develop key gas processing systems for the majority of U.S. RNG facilities in operation today. The company, founded in 2018 by landfill owners and RNG technologists, also believes it can develop green hydrogen from LFG and RNG at industry-leading costs by deploying proven technology.

As part of the business combination agreement announced April 7, Rice Acquisition Corp. will acquire Aria for $680 million and Archaea for $347 million for a total transaction value of about $1.03 billion.

Archaea is currently majority-owned and controlled by Rice Investment Group, an affiliate of Rice Acquisition Corp. Rice Investment Group’s equity ownership will be rolled into the transaction, with no secondary proceeds, according to the release.

Combined, the company, which will retain the Archaea Energy name, is expected to contract 60%-70% of RNG volumes under 10-20 year, fixed-price arrangements with investment-grade buyers.

Pro forma for the transaction, the combined company will have over $350 million of cash on the balance sheet and estimates 2021 EBITDA of $65 million. The company expects to start generating free cash flow in 2023 with EBITDA forecasted to grow to $327 million by the following year.

“This places Archaea on a short list of companies that can generate sustainable and compelling risk-adjusted returns while significantly reducing GHG emissions,” Rice added in his statement.

The transaction is set to close third-quarter 2021 and the combined company plans to be listed on the New York Stock Exchange under the ticker symbol “LFG”. At $10 per share, the combined company’s enterprise value is projected to be $1.15 billion, which implies a valuation multiple of 8.2x estimated 2022 EBITDA and 3.5x estimated 2024 EBITDA, according to the release.

In a statement commenting on the transaction, Nicholas Stork, co-founder and CEO of Archaea LLC, said: “We are on a mission to transform the role of RNG in empowering organizations to decarbonize and achieve their sustainability goals. In Aria, we found an irreplicable asset base and a team who shares our vision to harness the power of RNG and help both landfill owners/operators and investment-grade buyers of RNG meet their sustainability targets.”

Stork will serve as CEO of the combined company. The combined company will be led by a majority-independent board, which in addition to Stork, includes Scott Parkes, principal at Ares Infrastructure and Power, plus executives Daniel Rice, Kyle Derham, Kate Jackson, Joe Malchow and Jim Torgerson of Rice Acquisition Corp.

“The new capital raised will accelerate the combined company’s growth and solidify its leadership in the industry,” Stork added.

Rice Acquisition Corp. said it obtained $300 million through a “heavily oversubscribed and upsized” private investment in public equity (PIPE) deal. Commitments in the PIPE were led by institutional investors including The Baupost Group, BNP Paribas Energy Transition Fund, CIBC, Goldman Sachs Asset Management LP and Wellington Management. The Rice family is also investing $20 million in the PIPE, the release said.

In addition to the PIPE capital, Rice Acquisition Corp. secured $340 million of debt commitments from Comerica Bank’s Environmental Services Department. The company closed an upsized IPO in October, which garnered proceeds of $215 million.

Citi and Jefferies LLC were lead placement agents and Roth Capital Partners LLC acted as co-placement agent on the PIPE.

For the business combination, Pillsbury Winthrop Shaw Pittman LLP served as legal counsel to Archaea LLC. Barclays was financial adviser to Aria and Orrick served as legal counsel to both the company and Ares.

Rice Acquisition Corp. created a special committee, comprised of the independent directors of the SPAC, to negotiate the business combination of Aria, Archaea LLC and the company, including the purchase price for Aria and Archaea.

Moelis & Co. LLC was financial adviser to the special committee, which received legal counsel from Richards, Layton and Finger PA. Kirkland & Ellis LLP served as legal counsel to Rice Acquisition Corp.