Sentinel invests in utilities contractor(2)

Management of the middle-market private equity firm said many of the services provided by Precision Pipeline Services are required by public regulations, which ‘creates a nice, steady return business'. Other firms to invest in infrastructure service providers include Carlyle Infrastructure Partners and Altus Capital Partners.

Sentinel Capital Partners, a New York-based private equity firm, has added utility contractor Precision Pipeline Solutions (PPS) to its portfolio of middle-market companies, the firm said in a statement today.

Utilities services:
steady demand

The deal, whose terms were undisclosed, gives Sentinel an ownership stake in a company that helps gas and electric utilities build, maintain and operate their infrastructure by performing services such as pipeline construction, meter changes, repairs and inspections.

“Demand for these services is very steady and there’s also been a trend to outsource these services to contractors like PPS,” Eric Bommer, a Partner at Sentinel, told InfrastructureInvestor.

Additionally, many of the services provided by PPS are required by regulations from public utility commissions across the US, which “creates a nice, steady return business,” said Michael Fabian, a vice president at Sentinel.

Sentinel is not alone in making a bet on a company that services infrastructure assets. While infrastructure investments are often viewed as investments in hard, capital-intensive assets, many investors have instead placed their money on the companies that service them.

In May 2008, for example, Carlyle Infrastructure Partners, a $1.1 billion infrastructure fund managed by The Carlyle Group, acquired an interest in ITS Technology & Logistics, a company that generates 90 percent of its revenue from lifting containers on and off trains and trucks and maintaining related equipment. And in Sepetember 2008, middle market private equity firm Altus Capital Partners invested in DS Brown, a manufacturer of specialty components for bridges.

I don't think an infrastructure deal is any different than investing in any other piece of the economy. You've got to find a good management team and have to find a company that's different

Eric Bommer

Important considerations in these types of investments are similar to important considerations in any type of investment, according to Bommer. “I don’t think an infrastructure deal is any different than investing in any other piece of the economy. You’ve got to find a good management team and have to find a company that’s different,” he said.

One thing that made PPS different, according to Fabian, is the company’s in-house training program. Public utility commissions in the US require contractors such as PPS to be qualified and licensed to provide their services. “Not every contractor is going to be allowed to do this stuff. You have to have significant qualifications to do this work”, Bommer said.

PPS is headquartered in Newburgh, New York, and works with with “every major utility in NYC and major utilities in the northeast”, Bommer said.

Sentinel is currently investing from its fourth fund, Sentinel Capital Partners IV, which closed on $765 million in 2008.

The firm invests in lower middle-market companies with under $25 million in earnings before interest, tax, depreciation and amortisation, according to its website.