Filing summary
Important identity and period note: The request identifies Kinetik Holdings Inc., but the supplied filing is Kayne Anderson Acquisition Corp.’s Form 10-K, filed March 27, 2018, for the fiscal year ended December 31, 2017. It describes a blank-check company seeking an energy-sector acquisition, not an operating company. This summary reflects the supplied filing; the requested company identity does not match.
Business context and reporting period
Kayne Anderson Acquisition Corp. was formed in December 2016 and completed its IPO in April 2017. At year-end 2017 it had not begun operations, generated no revenue, and had not completed a business combination. It intended to focus on energy, particularly midstream, while retaining discretion to pursue other industries. The company had 24 months from the IPO closing to complete a business combination, or it would redeem public shares and liquidate.
Financial results and liquidity
| Metric | FY 2017 / December 31, 2017 |
|---|---|
| Revenue | None |
| Operating expenses | $1.738 million, including $1.538 million general and administrative expenses and $200,050 franchise tax expense |
| Trust-account interest income | $2.247 million |
| Income tax expense | $695,876 |
| Net loss | $187,108; basic and diluted loss per share was $0.02 |
| Cash from operating activities | $(865,828) |
| Cash outside trust | $479,055 |
| Investments held in trust | $379.177 million |
| Total assets / total liabilities | $379.723 million / $14.454 million |
| Stockholders’ equity | $5.000 million |
| Deferred underwriting compensation | $13.206 million, payable only upon a completed business combination |
Management stated that $366.0 million was available for a business combination after deferred underwriting fees and before transaction costs. The trust held approximately $10.04 per public share at year-end. No operating margin is meaningful because the company had no revenue.
Fourth-quarter 2017 net income was $325,505, following a $733,270 net loss in the second quarter and $220,657 net income in the third quarter. Fourth-quarter general and administrative expenses and franchise taxes were reported as $298,175, and interest income was $892,862. The filing’s quarterly table appears to contain a discrepancy in the third-quarter operating-loss figure; readers should consult the original table and audited statements.
Changes, outlook, risks and unusual items
- Compared with the brief period from inception through December 31, 2016, 2017 included the IPO, trust funding, interest income, and substantial due-diligence and public-company costs; the periods are not directly comparable.
- Management reported significant second-quarter due-diligence spending on acquisition opportunities it later stopped pursuing. Due-diligence costs included $1.092 million for the year.
- The company reported no debt outstanding at year-end. A sponsor working-capital loan of up to $500,000 was agreed to in March 2018, after year-end; the filing says loans could be repaid at a business-combination closing or, at the lender’s option, converted into warrants. Up to $1.5 million of such loans could be convertible.
- The filing cited challenging access to capital for energy companies but expressed optimism about the domestic energy sector’s recovery and production outlook. It provided no financial guidance or acquisition target announcement.
- Key risks include failure to complete a transaction by April 2019; possible loss of value or worthless warrants upon liquidation; third-party or bankruptcy claims against trust assets; dependence on sponsor financing; dilution or debt incurred to fund a transaction; and energy-sector commodity, regulatory, environmental, customer-credit and infrastructure risks.
- Potential conflicts include management and sponsor obligations to other investment vehicles, affiliated transactions or co-investments, and founder shares and warrants that would lose value if no transaction closes. The sponsor’s trust-account indemnity may be difficult to collect; the company said it had not verified the sponsor’s ability to pay.
- The Tax Cuts and Jobs Act reduced the federal corporate tax rate to 21%. The company said the change did not affect its financial position at enactment and expected lower taxes to benefit trust interest income beginning in 2018.
- The independent auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls were effective; the filing did not include an auditor attestation on internal controls.
Most important facts to verify
- Confirm the intended issuer: the supplied filing is for Kayne Anderson Acquisition Corp., not Kinetik Holdings Inc.
- Verify the trust balance, per-share redemption amount, deferred underwriting fee, and the stated $366.0 million available for a transaction against the audited statements and trust disclosures.
- Check the original quarterly financial data for the apparent third-quarter operating-loss discrepancy and confirm fourth-quarter figures.
- Review subsequent filings for any business-combination agreement, extension, sponsor financing, redemptions, or liquidation; this filing reports no completed transaction as of December 31, 2017.
- Assess sponsor indemnity capacity, trust-account claim exposure, potential dilution, and the terms of any related-party transaction or convertible working-capital loan.