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Aria Energy and Archaea Energy combine into the Industry-Leading Renewable Natural Gas Platform

  • Combined company is a proven and profitable business today with estimated 2021 EBITDA of $65 million, which is expected to grow to $327 million in 2024.
  • Expect to contract 60-70% of renewable natural gas volumes under 10-20 year, fixed-price arrangements with investment-grade buyers.
  • At $10 per share, the combined Company’s enterprise value of $1.15 billion implies a valuation multiple of 8.2x estimated 2022 EBITDA and 3.5x estimated 2024 EBITDA.
  • Rice Acquisition Corp.’s heavily oversubscribed and upsized PIPE obtained $300 million in commitments led by institutional investors including The Baupost Group, BNP Paribas Energy Transition Fund, CIBC, Goldman Sachs Asset Management LP[1], and Wellington Management.

Rice Acquisition Corp. (RAC), a special purpose acquisition company focused on the energy transition sector, this week announced an agreement to enter into a business combination with Aria Energy and Archaea Energy, which will create the industry-leading renewable natural gas (“RNG”) platform. The combined Company will be named Archaea Energy, with an experienced executive team comprised of leaders from Archaea LLC and Aria. The transaction is expected to close in the third quarter of 2021 and the combined Company plans to be listed on the NYSE under the ticker symbol “LFG”.

RAC is led by former executives of Rice Energy, which merged with EQT to become the largest U.S. natural gas producer. Daniel Rice IV, CEO of RAC, led Rice Energy’s growth from a start-up to the eventual $10 billion sale to EQT in 2017.

“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 RAC CEO Daniel Rice. “We became determined to create a leading RNG platform, and I believe bringing together Archaea LLC and Aria goes beyond that; I think we’ve created a new paradigm in RNG development. 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. The combined Company’s industry-leading growth is supported with innovative, long-term fixed-price offtake agreements to ensure it achieves its economic goals, while also helping its customers achieve their long-term climate goals. This places Archaea on a short list of companies that can generate sustainable and compelling risk-adjusted returns while significantly reducing GHG emissions.”

Nicholas Stork, co-founder and CEO of Archaea LLC and CEO of the combined Company, added: “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. The new capital raised will accelerate the combined Company’s growth and solidify its leadership in the industry.”

Investment Highlights:

  • The business combination is expected to create the industry-leading platform in the U.S. to capture and convert waste emissions from landfills and anaerobic digesters into low-carbon RNG, electricity, and green hydrogen.
  • Aria, a portfolio company of funds managed by the Infrastructure and Power strategy of Ares Management Corp (NYSE: ARES) (“Ares”), is being acquired for $680 million and brings a comprehensive portfolio of operational LFG assets, best-in-class operating experience, and a deep inventory of greenfield LFG-to-RNG projects and electric-to-RNG conversion opportunities.
  • Archaea LLC is being acquired for $347 million and brings leading RNG technology professionals, a deep inventory of LFG-to-RNG projects – including the world’s largest RNG plant currently under construction (“Project Assai”) – an innovative commercial strategy, groundbreaking low-cost carbon sequestration, and negative-carbon LFG-to-green hydrogen development projects currently in the design stage.
  • Pro forma for the transaction, the combined Company will have over $350 million of cash on the balance sheet, providing ample liquidity to fund its pipeline of development projects and bridging the combined Company to free cash flow generation starting in 2023.
  • The combined Company will be led by a majority-independent board consisting of executives Daniel J. Rice, IV, Kyle Derham, Kate Jackson, Joe Malchow, and Jim Torgerson of RAC; Nicholas Stork, CEO of Archaea; and Scott Parkes of Ares.

Acquisition Rationale and Process

Archaea Energy, the combined Company, is tackling one of the world’s most important climate problems. U.S. landfills are expected to grow from approx. 8 billion tons of waste in place in 2020 to 13 billion tons by 2050, which is expected to increase LFG emissions from 1.9 Bcf/d in 2020 to 2.8 Bcf/d by 2050. Capturing these emissions, comprised of ~50% methane and ~35% CO2, has the same environmental benefit as electrifying 75% of U.S. passenger vehicles.

LFG has a very predictable, 20-30 year production profile, and when coupled with continued growth in U.S. landfill waste for the next 20-30 years, creates 40-60 years of unparalleled LFG feedstock visibility. Compared to other renewable fuels, LFG-to-RNG developed by the combined Company is lower cost, more predictable, better for the environment, and more effective in reversing the impacts of climate change.

KeyFacts Energy: Acquisitions & Mergers news

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