Private equity firms have come to the rescue of struggling energy companies and their local communities, gaining much-needed public support with promises to save jobs and keep energy flowing.
These transactions are providing a respite from the drum beat of bad press private equity began getting at the height of the Republican presidential primary campaigns — and still continues.
Good will and positive press are not all that The Carlyle Group, KKR & Co. LP, The Blackstone Group LP and others are receiving from these investments.
Energy investments, especially natural gas, are extremely hot right now. Generalist alternative investment managers are bringing piles of capital to get in on the financial bonanza expected from building the infrastructure, support systems and plants needed to turn the U.S. into the natural gas supplier to the world.
The amount of capital being raised by the larger private equity firms to invest in energy doubled to $33 billion in the past three years, said Andrew Brown, senior investment consultant in the London office of Towers Watson & Co., citing data from Preqin, an alternative investment research firm in London.
Also, deals are getting larger. Private equity firms closed 18 energy deals with a combined value of $8.38 billion in the second quarter, up from 27 deals valued at $2.42 billion in the first quarter and 34 deals worth $10.86 billion in the second quarter of 2011, according to Seattle-based data research firm PitchBook Data Inc.
Mainstream private equity funds are now partnering with energy-focused funds on some of these transactions, said David Fann, president and CEO of La Jolla, Calif.-based private equity consulting firm Torrey Cove Capital Partners. “Liquefied natural gas should be huge” in terms of attracting money, he said.
Consultants are also boosters for the sector.
“Most limited partners and investors who have spent time studying the energy sector see this as a good opportunity,” Mr. Fann said. “We think, for most clients, a greater exposure to energy is a good tactical shift.”