Energy buyout firms see ‘unprecedented’ deal flow

Save for the highly leveraged power industry, which has had deal activity all but freeze, GPs speaking at PEI’s Energy Forum in New York today said business is booming and credit conditions are fuelling deal flow.

Energy-focused private equity firms, especially those investing in oil and gas companies, are reporting higher levels of activity despite the frozen credit markets and economic turmoil affecting many other private equity firms.

“In the last year, we’ve seen an unprecedented amount of deal flow,” Will Honeybourne, a managing director with energy-focused First Reserve, told delegates at Private Equity International’s Energy Forum in New York today.

First Reserve, which is currently investing its $7.8 billion Fund XI, is seeing opportunities to invest in

Will Honeybourne

companies that are “stressed, not distressed”, that need capital to meet debt obligations but are strong companies, Honeybourne said. He added the firm is also exploring investments in alternative energies.

Honeybourne’s report of robust deal activity was echoed by fellow energy-focused Jonathan Farber, a managing director with Lime Rock Partners, Scott Gieselman, a managing director with Natural Gas Partners, and Wil VanLoh, president and chief executive of Quantum Energy Partners.

Farber said Lime Rock has benefited from the global credit crisis because the generalist, middle market private equity firms that had made energy acquisitions loaded with leverage in the past are not around.

We've closed investments in the last six months we wouldn't have been able to do a few years ago.

Jonathan Farber

“For cash buyers, the privates are more reachable,” Farber said. “We’ve closed investments in the last six months we wouldn’t have been able to do a few years ago.” Lime Rock is investing from its $1.4 billion Lime Rock Partners V.

Gieselman, too, said credit conditions are providing Natural Gas Partners more opportunities in that the lack of liquidity is sowing panic in the hearts of company managers and driving them to private equity for help.

“A couple calls we’ve had in the last three to four weeks have been [motivated by] fear, fear taken over for greed,” Gieselman said. “Public companies or private companies are dealing with a market they didn’t expect and weren’t prepared for and they need capital.”

Natural Gas Partners is currently investing from its $4 billion Natural Gas Partners IX, and Quantum Energy Partners is investing from its $1.3 billion Quantum Energy Partners IV.