Ares debuts second SPAC IPO in uncertain times but raises less capital than the first

By Steve Gelsi

Ares Acquisition Corp. II is the largest special purpose acquisition company by total dollar proceeds to go public since January 2022

Ares Management Corp.'s second blank-check stock offering added $50 million in stock to bring its total proceeds to $500 million for a successful debut, in a sign of healthy demand in the face of a choppy market.

Ares Acquisition Corp. II debuted April 21 at $10 a share as the largest special purpose acquisition company (SPAC) by total dollar proceeds to go public since January 2022. It was last trading at $10.11 a share on Friday.

Typically, SPACs trade close to the cash value they hold on their balance sheet for the planned purchase of another company, typically from the private sector. In the case of Ares Acquisition Corp. II, the stock price reflects the value of its IPO proceeds as well as warrants attached to the deal.

Ares moved ahead with the IPO partly because of its experience taking companies public in various market conditions and its familiarity with SPACs and other listings, a source familiar with the firm told MarketWatch. The SPAC also stands alone as one of the larger IPOs during the current period of market volatility and reflects Ares's confidence in its business, the source said.

Founded in 1997, Ares Management Corp. (ARES) has taken more than 10 portfolio companies public. It also manages other publicly traded entities, including the business development company Ares Capital Corp. (ARCC), Ares Commercial Real Estate Corp. (ACRE) and Ares Dynamic Credit Allocation Fund (ARDC), as well as its first SPAC, Ares Acquisition Corp. (AAC).

Including an additional 5 million shares for the underwriter overallotment, Ares Acquisition Corp. II raised about $500 million before fees. That's about $370 million less than the $870 million brought in by its predecessor, Ares Acquisition Corp., in early 2021, a go-go year for SPACs and IPOs.

Both Ares Acquisition Corp. and Ares Acquisition Corp. II are headed up by the same CEO, David B. Kaplan, who is also co-founder, director and partner of Ares Management Corp.

Ahead of its debut, Ares Acquisition Corp. II increased the size of its initial public offering by 5 million units, to 45 million units at $10 each, with underwriters Citigroup (C) and UBS (UBS). The stock's birth marked the 12th SPAC IPO of 2023, according to IPOScoop.com.

Jay Ritter, a finance professor at the University of Florida who tracks the IPO market, said Ares's positive reputation helped Ares Acquisition Corp. II get to the finish line.

Citigroup is one of the few big-bank underwriters working on SPAC deals of late, Ritter said. Since late 2022, Citigroup and Credit Suisse [which is now owned by UBS] have been the only big banks to be lead underwriters of a SPAC, he said.

With few big SPACs out prowling for deals nowadays, Ritter said Ares Acquisition Corp. II may not have much trouble finding a company to buy.

"If there is a relatively large company that wants to merge with a SPAC in the next two years, Ares II has very little competition," he said.

Ares Management is venturing into the SPAC space at a time when many other bigger SPAC managers have exited. There are 280 SPACs that have not announced a merger and 219 SPACS that have liquidated in the last 12 months without inking an acquisition, according to data provider SPAC Research. Another 157 SPACs have announced a merger but not yet completed it.

For its part, Ares Acquisition Corp. in December announced plans to acquire Rockville, Md.-based X-Energy Reactor Company LLC, a developer of small modular nuclear reactors, for premoney equity value of approximately $2 billion. The deal is expected to close in mid-2023.

Private-equity firm KKR & Co. (KKR), hedge fund Pershing Square and AltC, which is run by OpenAI co-founder Sam Altman and Michael Klein, the founder of investment bank M. Klein & Co., have all curtailed their SPAC activity in 2023.

Also read: KKR Acquisition Holding to liquidate as the latest SPAC melts down

Goldman Sachs Group Inc. (GS) has also called it quits as a SPAC underwriter as the deal environment has become less frothy and regulators have started taking a closer look at the space.

Also read:Demise of largest SPAC ever comes amid market and regulatory headwinds

And: You bought. They sold. Meet some of the insiders who unloaded $35 billion in stock amid the tech IPO bonanza before it tanked

-Steve Gelsi

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04-28-23 1429ET

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