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X-energy’s $2.3bn SPAC Merger with Ares Acquisition Corp.

By Sean Millar, Matthew Moran and Pramoth Ragavan (University of St Andrews), and Adil Amlaiky (McGill University)

Photo: Hal Gatewood (Unsplash)


Overview of the deal

Acquirer: Ares Acquisition Corporation

Target: X-energy

Total Transaction Size: $2.3bn

Announced date: 6 December 2022

Expected close date: Q2 2023

Target advisor: Guggenheim Securities LLC (Financial), Latham & Watkins LLP (Legal)

Acquirer advisor: Moelis & Company LLC (Financial), Kirkland & Ellis LLP (Legal)

X-energy Reactor has gone public through a $2.3bn Ares SPAC merger. This will establish X-energy as a developer of an enhanced small modular reactor (“SMR”) and proprietary fuel which aids in the transition to cleaner and more affordable energy through increased safety, lower cost, improved scalability and wider-ranging industrial applications.

Institutional and strategic investors have either invested or committed $120 million in financing, comprising $30 million from Ares and $45 million from Ontario Power Generation and Segra Capital Management Group, as well as an additional $45 million from Ares which will be invested simultaneously with the closing of the transaction. The combined company will also receive close to $1 billion cash held in Ares Acquisition Corporation’s trust account. In addition, current X-energy equity holders will be able to roll all of their existing equity interests into the combined company.

The deal is expected to close in Q2 2023, following which the combined company, X-Energy Inc., will be listed on the New York Stock Exchange.

"We wanted to partner with Ares because of its investment expertise, industry and investor relationships, and access to capital across its global platform that we believe can enhance our business. We are thrilled to partner with Ares on this transaction." - Clay Sell, CEO (X-energy)

Company Details (Acquirer - Ares Management Corporation)

Ares Management Corporation is a Los Angeles-based alternative investment firm with $352bn AUM. The company boasts a strong global presence and was founded in 1997 with a focus on investment activities in leveraged loans, high yield bonds, private equity and private debt before becoming an independent company in 2002. Today it has a leading position in offering primary and secondary investment solutions in real assets, private equity and private debt. Currently its PE arm has $34.7bn AUM targeting a combination of controlling and non-controlling stakes in growth-oriented middle-market businesses within North America and Europe. Within their PE funds they focus on investments in their core sectors of Healthcare, Services, Consumers and Industrials with their most recent fund the Special Opportunities Fund II being launched in October 2022.

Founded in 1997 headquartered in Los Angeles, California

CEO: Michael Arougheti

Number of employees: 2,500

AUM: $352bn

Market Cap: $24.6bn (as of 31/12/2022)

EV: $28.9bn

LTM Revenue: $3.1bn

LTM EBITDA: $703.4mn

LTM EV/Revenue: 9.5x


Recent Transaction: $120mn minor stake in Swell Energy Inc (November 2022)

Company Details (Target - X-energy)

X-energy was founded in 2009 and is based in Maryland, USA. It is a private nuclear reactor and fuel design engineering company. In January 2016, X-energy was provided a five-year grant of up to $40 million, as part of the Department of Energy’s (DOE) Advanced Reactor Concept Cooperative Agreement to advance elements of their reactor development. In 2019, X-energy received funding from the United States Department of Defense to develop small military reactors for use at forward bases. It is currently developing a Generation IV high-temperature gas-cooled pebble-bed nuclear reactor design.

Founded in 2009, headquartered in Rockville, Maryland

CEO: Clay Sell

Projections and Assumptions

Short-term consequences

For X-energy, the backing of a firm with international recognition through this SPAC merger will thrust the small modular reactor company into a position of higher visibility and repute. With SMR technology being a key bridge in the transition to cleaner energy solutions, this merger plays part in the progress towards a more sustainable future.

The reception of $1 billion from Ares Acquisition Corporation’s trust account will accelerate X-energy’s growth strategy by allowing further financial flexibility. It will also provide protection from the high costs of technological development, especially given the expected 2025 opening of the TRISO-X Fuel Fabrication Facility which, as North America’s first commercial advanced nuclear fuel facility, is set to form the foundation for future commercial-scale advanced nuclear energy research and development.

The aforementioned high costs are particularly relevant in the specific case of the energy sector — a sector with significant regulatory and safety requirements. Despite X-Energy’s CapEx-light business model, this investment allows for the capability for expansion into new markets, both internationally and domestically, in line with the global transition towards renewable energy. Following the acquisition, X-energy’s existing equity holders are expected to hold over 60% of the issued and outstanding shares of common stock of the combined company.

This acquisition follows the 2022 acquisition of fellow small modular reactor company and X-Energy competitor NuScale Power by SPAC Spring Valley Acquisition Corporation, which led to $380 million in gross proceeds for NuScale. These SMR acquisitions will create potential for massive growth in the energy sector and mark the rise of efficient, low-pollutant and high energy density renewable energy sources. That said, NuScale missed 2022 Q3 expectations with a net loss of $10.7 million.

Long-term Upsides

In addition to backing from large strategic investors, such as Ontario Power Generation Inc, Dow, Grant County Public Utility District (WA), and Energy Northwest, X-energy is forecasted to have a revenue potential of $500 billion by 2040 and $1 trillion by 2050. The World Nuclear Association mentioned the current trend being a shift from R&D, which is usually financed by governments, to private sector entities with a variety of social goals relating to clean energy. This trend coupled with demand for SMRs increasing from governments allows X-energy to benefit from tax credits and government programs that fund its operations. For example, in 2020, X-energy received $1.2 billion in federal funding as part of the Advanced Reactor Demonstration Program.

By entering public markets, X-energy plans to offer regulatory support, project planning, construction and assembly coordination, procurement support, and maintenance and operations services. X-energy will have 67 Gigawatt SMRs put in place by 2024 in the United States, Canada, and the United Kingdom. This would allow the company to meet the expected growth in energy demand while offsetting the retirement of existing coal and fossil fuel plants.

Risks and Uncertainties

Members of the Nuclear Power Safety at the Union of Concerned Scientists were concerned about the justification for a small reactor that would produce more expensive electricity than if it was large. Members emphasised that the counterargument of economies of scale benefiting SMRs has not been proven. However, researchers and equity research analysts are optimistic, mentioning that SMRs can ramp up and down faster, which would increase the grid’s flexibility. Moreover, they mention that increases in power are necessary to achieve decarbonisation and this is more important than ever during the Russia-Ukraine conflict. X-energy’s competitor, NuScale, has a first-mover advantage, which could reduce the aforementioned potential revenues in 2040 and 2050.

“A small reactor is going to produce more expensive electricity than large ones. It would require a large order book and experience.” - Edwin Lyman, Director (Nuclear Power Safety at the Union of Concerned Scientists)


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