Special purpose acquisition vehicles (SPACs) attracted heavy interest in 2020, and the trend toward using them as tools to take private companies public is only expected to continue growing. Given that, there will be lots of options for investors to get in on SPACs in 2021, but the one I am most excited about right now is Switchback II Corporation (NYSE: SWBK.U), which began trading on Jan. 8.

Switchback II raised $275 million, pricing units that included one share of common stock and one-fifth of a warrant, exercisable at $11.50, for $10 per unit. Not only does Switchback II have a proven management team, but it also plans to focus on a great sector.

Hunting for clean energy opportunities

SPACs are sometimes referred to as blank check companies. They're holding companies that go public with essentially no business attached. Their sole purpose is to raise money through an initial public offering in order to eventually purchase a private company and take it public.

But because they hit the public markets as basically shell companies, investors can't know what business a SPAC will ultimately purchase or merge with. What SPACs do often reveal is the industry or sector they will pursue, so before investing in one, it's important to evaluate that sector and its prospects.

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The Switchback II team said in its S-1 prospectus that it plans to focus on the energy technology sector, specifically "industries that require sustainable and innovative solutions to decarbonize in order to meet critical emission reduction objectives." As they note, the International Energy Agency (IEA) has highlighted more than 800 technology options the energy sector would need to implement in order for the world to reach net-zero emissions -- a goal that many countries, states, cities, and businesses are committed to helping us reach.

The IEA also believes that it will take $30 trillion of investment by 2040 to achieve net-zero emissions. Given President-elect Joe Biden's commitment to clean energy initiatives, the sector should also benefit from his policies over the next four years at the least. That all adds up to some tremendous potential for the companies in the sector -- and their shareholders.

An experienced team

The other key point when it comes to investing in SPACs is that you're betting heavily on the skills of a management team. You'll want one that can execute on its strategy and ultimately make a good deal. Most SPACs only have around two years to get that deal across the finish line -- if they fail to, they are forced to return shareholders' money. The risk to investors is not just that they might tie up their capital in an asset that generates no return. There is also a real possibility of losing money because the SPAC only returns the initial amount raised in the offering.

Switchback II has a management team with a pedigree -- it recently completed a deal that resulted in one of the best-performing SPACs of 2020. They ran Switchback Energy Acquisition (NYSE:SBE), which went public in September 2019. In September 2020, Switchback Energy announced a deal to merge with electric vehicle charging network operator ChargePoint. Since that time, the stock's price has risen from around $10.45 per share to more than $40 per share.
The team also has extensive experience investing in the energy sector. Co-CEO and CFO Scott McNeill previously worked as the CFO of RSP Permian, an independent oil and natural gas company, until it was acquired by Concho Resources in 2018. While he was at RSP Permian, the company spent more than $13 billion on mergers and acquisitions, and $7 billion of financing. Prior to his time there, McNeill served as a managing director in the energy investment banking group of Raymond James Financial. His co-CEO, Jim Mutrie, worked at RSP Permian too, as a vice president, general counsel, and corporate secretary.
Switchback II is also sponsored by NGP Energy Capital Management, a family of private equity funds that invests in oil and gas acquisition and development; midstream acquisition and development; oil and gas minerals and royalties; and energy technology and renewables. NGP's funds have raised $20 billion of cumulative capital and invested in more than 215 companies since its founding in 1988.

Additionally, NGP was an early leader in investing in energy technology and renewables, and has deployed approximately $500 million of capital across a range of renewable and energy technology companies since 2005. Having the support of NGP and this kind of management team should greatly help Switchback II identify a good company to merge with and come to an agreement.

Where to buy

SPACs are always risky because the companies only have a set time to do a deal, or they'll be forced to return shareholders' money. And there are other issues that make valuing them difficult for outside investors. In addition, with so many SPACs out there now, it can be tougher to find the good ones. But given that it has a plan to pursue a merger in a promising sector and an experienced management team, Switchback II is definitely the one I am most excited about in 2021.