Still plenty of juice left in this Pineapple
“…However, the new FCA rules increased the minimum market fund raise and capitalisation threshold for listing from £700,000 to £30m, a decision very much in favour of existing listed cash shells on the London Stock Exchange such as Pineapple…”
As the conflict in Ukraine further highlights the fragility of world’s energy infrastructure, special acquisition vehicle Pineapple Power Corporation PLC (LON:PNPL) continues its search for a suitable clean energy venture.
A Special Purpose Acquisition Company (SPAC) is an enterprise that goes public with nothing but cash and the aspiration to acquire one or more private companies. Such ‘cash shells’ offer opportunities for companies seeking capital to secure investment without having to go through a lengthy and costly IPO process.
Pineapple listed on Christmas Eve 2020, raising gross proceeds of £1.3m with ‘the intention to acquire renewable or clean energy technology companies and to finance, develop and promote those environmentally sound projects internationally’. Founded by major shareholder Clive de Larrabeiti, a finance and public equity markets veteran who serves as Corporate Finance Advisor, the company is led by Directors Claudio Morandi, founder and Managing Director of financial services consultancy Valreco, based in Zurich, Switzerland and Andrew Holland, Managing Director and Chief Investment Officer at Ivory Wealth Management, based in Cape Town, South Africa.
Pineapple seemed to be on its way last August, when it entered into a non-binding heads of terms agreement to acquire Dublin-based fund manager BVP Investments Limited.
Following the announcement Pineapple duly suspended the listing of its shares in accordance with the FCA rules that applied to SPACs at the time, in anticipation of completion of the proposed acquisition, after which the company’s enlarged ordinary share capital would be re-admitted to trading. On February 28th, however, the company announced that ‘ultimately the parties were unable to come to a mutually acceptable agreement on valuation and the final structure of the transaction’, and that the acquisition would not proceed. Pineapple expressed ‘extreme regret’ but continued to believe that the renewable energy sector encapsulates many smaller, dynamic and rapidly growing enterprises ready to access the capital markets’. Re-iterating the investment strategy set out in the company’s prospectus, Pineapple will ‘proceed immediately to seek an attractive acquisition opportunity, with the objective of maximising value for … shareholders’ and ‘will make further announcements in due course’.
Importantly, the company also sought to clarify the implications of new FCA rules requiring companies to list with a minimum fund raise and market capitalisation of £30m, noting that the revised regulations, introduced last December, do not apply to Pineapple since it was listed prior to the change in the regulations. In brief, Pineapple remains ‘one of a very limited number of special purpose vehicles able to conduct future reverse takeover transactions on the London Stock Exchange with valuations of less than £30m.’
Though the non-completion of the BVP transaction was a disappointment, Pineapple’s prospects ultimately depend on the clean energy sector’s continued capacity to generate promising new renewable energy ventures of the right size, price and ambition. The developing energy supply crisis, exacerbated by the Ukraine conflict, has highlighted the complexity of the world’s energy requirements, making brutally plain our continued reliance on fossil fuels and the requirement to adopt new technologies designed to lessen this dependence.
The long term demand for energy, green and brown
But the conflict with Russia has also served as a visceral reminder of the urgency to develop clean energy infrastructures that do not depend on Siberian oil and gas, which supplies two-thirds of Europe’s energy. In an interview earlier this week Ben Powell, a strategist at BlackRock, hardly a dove in eco-terms, said that the spike in energy prices showcased the need for countries to accelerate the transition towards greener forms of energy, observing that the ‘energy transition is ongoing and if anything, some of the vulnerabilities have been made very clear in the last few weeks, and the importance of the investment into the energy transition infrastructure is even clearer … It’s not only a green issue, but also a broader supply issue now. We would see this as an accelerant to the transition towards energy sources of the future because the energy sources of the past have shown to be fraught with challenges in the last few weeks.’
Buffeted by soaring energy bills, policymakers have dialled down talk of green new deals prevalent just a few months ago, acknowledging that hydrocarbons still have a role to play as transition fuels, but continue to pursue ambitious strategies to move towards cleaner energy. Though weathering mid-term troubles the Biden administration, along with most US states, continues to fund ambitious green investment programmes. The UK government, though acknowledging the continued contribution of North Sea oil, is still signalling long term commitment to renewables. Germany has revealed plans for a wholly renewables-based electricity supply by 2035, and the European Commission is set to further ease restrictions on the development of new wind farms. Investors have made the same assessment. All energy stocks are rising, green as well as brown. Clean energy ETF returns have soared since the war broke out, the industry-standard iShares Global Clean Energy UCITS ETF (INRG) leading with 9.5pc gains in the week to 25 February.
SPAC growing pains
The long term prospects for SPACs also seem to be becoming clearer since Pineapple first listed. The company went public in the midst of a bloom of market enthusiasm for blank cheque companies. Last year SPACs raised more on US markets than traditional IPOs for the first time, as investors piled in on speculative growth stocks. UK regulators scrambled to keep up, easing some LSE regulations to help the market keep up with Wall Street and EU rivals that were riding the SPAC wave more successfully.
However, the new FCA rules increased the minimum market fund raise and capitalisation threshold for listing from £700,000 to £30m, a decision very much in favour of existing listed cash shells on the London Stock Exchange such as Pineapple. Indeed the increase This increase similtaneously heightens their potential value, leaving a select group of small cap special acquisition entities able to qualify for listing, with eligibility to others closed. due the fact that only a handful of these companies exist currently and with no further small cap entities now able to qualify for a listing makes them increasingly rare.
SPACs help fulfil a demand among ordinary investors for access to early-stage companies that would otherwise be tempted to remain private, giving start-ups access to a deeper pool of capital without undue administrative burden.
There has been much excitable commentary on the prospects both for clean energy and SPACs over the past few months. But as the dust settles, it would seem clear that the drive towards an environmentally sustainable energy infrastructure remains the global economy’s most significant mega trend, and that special acquisitions vehicles are maturing as a useful framework for opening promising new companies to investors keen for access to innovation. Pineapple is still well positioned at the intersection of those two vectors.
The company has work to do to find a new prospect, but with money in the bank, and a window open till December 2023, it has time on its side. Pineapple Power Corporation is one for small cap energy investors to watch this year.