Warburg Pincus in $2.4bn energy deal

Through its portfolio company Targa Resources, the global private equity firm has announced the acquisition of the midstream energy business of Dynegy for approximately $2.4bn.

With backing from its private equity owner Warburg Pincus, Houston-based Targa Resources has agreed to purchase Dynegy Midstream Services, a subsidiary of the publicly traded power generation and natural gas company Dynegy, for approximately $2.35 billion (€1.9 billion).

Under the terms of the transaction, which is expected to close in the fourth quarter, Dynegy will receive $2.35 billion in cash upon closing with up to $200 million more payable to the company upon the return of cash collateral and letters of credit.

Warburg Pincus formed Targa Resources in April 2003 with Rene Joyce, former president of Tejas Gas Corporation and Targa’s current chief executive officer. One year later, the company made its first acquisition, purchasing a group of pipelines and gas plants from ConocoPhillips for an undisclosed price. And in December, Targa spent approximately $100 million to buy out Enron’s 40 percent stake in Bridgeline Holdings, a Louisiana pipeline company majority-owned by Chevron.

Dynegy Midstream comprises Dynegy’s natural gas gathering and processing assets, as well as the company’s natural gas liquids fractionation, terminalling, storage, transportation, distribution and marketing assets.

In a statement, Warburg Pincus partner Peter Kagan said that the Dynegy acquisition “will present a number of attractive value enhancement and growth opportunities” for Targa, which currently controls energy assets in Louisiana and Texas. In addition to its business assets in Texas, New Mexico and Louisiana, Dynegy Midstream owns transportation and logistics operations throughout the US.

Warburg Pincus has been an active player in the energy sector for a number of years, investing approximately $1.5 billion in more than 20 energy-related companies. Last year, Warburg teamed up with The Blackstone Group to provide $300 million of equity backing to Kosmos Energy to fund the acquisition, exploration and development of oil and gas ventures in West Africa.

Warburg Pincus is currently in the process of raising one of the largest funds on record with an estimated target of approximately $8 billion.