(Sept. 25) – The private equity business is getting more crowded, with more entities – like infrastructure firms and sovereign wealth funds – jumping in and a lot of capital – a high of $1.1 trillion raised – chasing opportunities. That’s led to more competition for deals, which have become more expensive.
“We’re paying crazy prices for good CEO’s,” Grphyon Investors principal Vince Carey said at a private equity breakfast held by the GulfStar Group a few weeks ago.
The trend has forced traditional private equity firms to be more creative in winning deals. According to a recent survey of 100 private equity executives by Dechert and Mergermarket, 88 percent agreed that having a niche had become important to their firm, with almost half saying it gave them a leg up in convincing companies to sell to them in their area of specialization.
Respondents also said they were very likely to consider making acquisitions based on industry or market differentials (57 percent), create vertically integrated portfolio companies instead of horizontal ones (56 percent) and build a portfolio company from scratch with a hand-picked management team (51 percent).
An overwhelming majority of respondents (93 percent) also said geographic diversification or expansion had become more important to them over the last three years, with 65 percent saying it had become significantly more so, driven by a desire to gain exposure to faster growing regions (62 percent).
Respondents were split on exit returns, with 50 percent thinking conditions will be favorable and 43 percent thinking they will be neutral or unfavorable.
A lot of transactions handled by Texas lawyers this past week involved private equity – eight out of the 13, in fact.
The total deal value for the period amounted to $7 billion, almost double the $3.57 billion booked the previous week. There were three capital markets deals worth $995 million versus 10 M&A and private equity deals worth $6 billion. Sectors represented included oil and gas (of course) along with chemicals, industrial, telecom, utilities and manufacturing.
Eleven law firms and 75 Texas lawyers were involved in the activity, versus seven firms and 44 attorneys the previous week.
And while there was one initial public offering filed this week (Riley Exploration Permian) and another that made it across the finish line (Bank7), one was postponed and another was withdrawn, both in the oil and gas industry (see updates below). It’s not a good sign for capital markets activity going forward.
V&E, Bracewell counsel on Enbridge’s $3.5B acquisition of affiliates
As The Texas Lawbook reported last week, Texas lawyers from three firms played advisory roles in Enbridge Inc.’s $3.5 billion stock purchase of what it didn’t own of Enbridge Energy Partners and Enbridge Energy Management in an effort to simplify its corporate structure.
Vinson & Elkins provided tax counsel to Enbridge. The team members from Texas included partners Ryan Carney in Houston and Jim Meyer in Dallas and associates Christine Mainguy and Jen Maul in Houston.
Bracewell represented the special committees from Enbridge Energy Management and Enbridge Energy Partners. The group included Houston partners Will Anderson on the corporate side, Bradley J. Benoit and Stephen B. Crain on securities/litigation and Lance W. Behnke on tax (he also offices out of Seattle). Austin partner Timothy A. Wilkins advised on environmental matters.
Others on the team were counsel Diane M. Crabtree (securities/litigation) and associates Benjamin J. Martin, Andrew W. Monk and Jay N. Larry (corporate) and Drew Taggart (securities/litigation), all of Houston.
Gibson, Dunn & Crutcher counseled Evercore as financial advisor to the special independent committee of Enbridge Energy Partners’ board. That group included corporate partner Hillary Holmes, corporate associate Justine Robinson and tax partner James Chenoweth, all of Houston.
BofA Merrill Lynch and Scotiabank were financial advisors to Enbridge. McCarthy Tetrault was its Canadian legal and tax advisor and Sullivan & Cromwell was its U.S. legal advisor.
Goldman Sachs was Enbridge Energy Management’s financial advisor while Morris, Nichols, Arsht & Tunnell was legal advisor to both special committees.
Enbridge Energy Partners public unitholders will receive 0.3350 of a common share of Enbridge for each of their units, an 8.7 percent increase to the exchange ratio Enbridge proposed on May 17. Enbridge Energy Management stockholders also will receive 0.3350 of a common share of Enbridge for each of their shares.
The transactions have to be approved by stockholders of both entities and are expected to close later this year.
Weil, V&E work on Nexeo’s $2 Billion sale to Univar
As The Lawbook also wrote about last week, Texas lawyers worked on Univar’s purchase of the Woodlands-based chemicals and plastics distributor Nexeo Solutions for $2 billion, including debt.
Nexeo chief legal officer Michael Farnell Jr., who also serves as chief administrative officer, hired his former law firm Weil, Gotshal & Manges as the company’s outside legal advisor.
Weil’s deal team was based in New York, but Benton Lewis in Dallas was the finance partner on the transaction.
Wachtell, Lipton, Rosen & Katz counseled Univar, which used Goldman Sachs as its financial advisor. Moelis & Co. was Nexeo’s financial advisor.
Vinson & Elkins said it advised TPG, which backed Nexeo before U.S. Commerce Secretary Wilbur Ross Jr.’s blank-check company WL Ross Holding Corp. purchased it 2016 for $1.58 billion (it kept some shares).
V&E Houston partners Lande Spottswood and Sarah Morgan led the team with assistance from associate Jessica Lewis. Houston partner Lina Dimachkieh advised on tax matters.
Before joining Nexeo, Farnell was legal counsel for TPG between 2006 and 2011 and a corporate attorney at Weil in Dallas between 1998 and 2006. The SMU-trained lawyer also served on the board at TPG-backed Vita Group, a U.K. foam rubber maker, between 2006 and 2013 (Vita was sold earlier this year to investor Strategic Value Partners for an undisclosed sum).
Nexeo shareholders will receive $11.65 per share in cash and Univar stock, a 16.4 percent premium over the company’s closing price before the deal was announced.
The consideration includes 0.305 of a share of Univar stock for each Nexeo stock and $3.29 per share in cash, which could be reduced by up to 41 cents per share based on Univar’s stock trading before the transaction closes.
The transaction has to clear regulators and both sets of shareholders but should close in the first half of next year. Nexeo stockholders TPG and First Pacific have agreed to approve the transaction.
Akin, Latham aid on Diamondback’s $750 million tack-on notes offering
Diamondback Energy Inc. priced a tack-on offering of $750 million in 4.750 percent senior notes due 2024, $250 million more than a previously announced offering.
Diamondback intends to use the net proceeds to repay the outstanding borrowings under its revolver and for general corporate purposes, which may include funding its pending $1.2 billion acquisition of assets from Kelso-backed Ajax Resources.
Akin Gump Strauss Hauer & Feld advised Diamondback with a team led by corporate partner Seth Molay.
Team members included debt finance partner Alan Laves, tax partner Alison Chen, corporate senior counsel Irina Maistrenko, counsel Rachel Diane Evans and associates Katie Dinett and Justin Wood and environment and natural resources senior counsel Andrew Oelz.
Akin Gump also represented Diamondback on the Ajax transaction with Thompson & Knight assisting Ajax.
Latham & Watkins counseled the underwriters, including partners Michael Chambers and David Miller and associates Patrick Sanford, Erin Lee and Rebecca Kendall.
Diamondback’s general counsel is Randall Holder.
Kirkland, DLA advise on Warburg Pincus’ $500M commitment to Tall City III
Kirkland & Ellis said Sept. 17 it advised Warburg Pincus on its $500 million equity commitment to Tall City Exploration III.
The team included corporate partners Adam Larson and Samuel Peca, associates Stella Tang and Tyler Dunphy and tax partner Mark Dundon.
DLA Piper partner Jack Langlois and associate Jibin Luke were outside counsel to Tall City.
Tall City III is a Midland-based exploration and production company focused on acquire-and-exploit opportunities throughout the Permian Basin.
Tall City’s previous incarnation was backed with $300 million from Denham Capital. That entity previously sold properties to American Energy-Permian Basin and China-owned Moss Creek Resources in separate transactions that together were worth more than $1.2 billion.
Tall City is led by president and CEO Michael Oestmann, an Exxon-trained geologist and geophysicist, along with many members of the original team, including senior VP of land and general counsel Angela Staples.
The UT law-educated Staples previously practiced at Davis, Gerald and Cremer and Cotton, Bledsoe, Tighe & Dawson in Midland.
David Habachy in Houston led the investment from Warburg Pincus, which has $45 billion in private equity assets under management.
Gibson Dunn, Sidley aid on Legacy’s $130M notes exchange
Gibson Dunn & Crutcher said Sept. 17 it represented placement agent Lazard on the exchange of $130 million in senior notes for new convertible notes for Legacy Reserves.
The team included partner Hillary Holmes, associate JP Lopez and tax partner James Chenoweth, all of Houston.
Sidley Austin counseled Legacy, including partner George Vlahakos and associates James Porter and Tanner Groce.
The Midland-based partnership announced the transaction Sept. 14.
T&K aids on $115M Riley Exploration Permian IPO
Oklahoma City oil and gas explorer Riley Exploration Permian filed for an $115 million initial public offering.
The company plans to trade on the New York Stock Exchange under the ticker symbol REPX. SunTrust Robinson Humphrey is the lead underwriter.
Di Santo Law is counseling the company and Goodwin Procter is representing the underwriters. Thompson & Knight also is involved in the issue, including Joe Dannenmaier and Amy Curtis.
A T&K spokeswoman wouldn’t comment on the firm’s involvement, but it’s advised Riley shareholder Yorktown Energy Partners in the past.
Bluescape, an investment group headed by former TXU CEO John Wilder, is another Riley stockholder.
Vanguard sells Arkoma, DJ Basin assets for $14.5M
Vanguard Natural Resources Inc. sold oil and gas properties in the Arkoma and DJ Basins to an undisclosed buyer for $14.5 million.
Vanguard general counsel and VP of land Jonathan Curth handled the latest sale inhouse.
The UT-trained lawyer was appointed to the positions this past December after working as assistant general counsel at Newfield Exploration Co. for four-plus years. Before that he was a senior associate at Baker McKenzie in Houston and an associate at Brown & Fortunato in Amarillo.
The Arkoma transaction represents Vanguard’s exit from Arkansas. Closing is expected in the fourth quarter.
Last month family-owned Sanguine Gas Exploration said it bought the Potato Hills properties in the Arkoma Basin from Vanguard for $22.9 million, signaling its entry into the area.
Vanguard exited Chapter 11 bankruptcy last summer with a plan to shed around 10 percent of its 774,000 net acres.
Gibson Dunn aids Brazos on sale of BlackHawk to Snow Phipps
Gibson, Dunn & Crutcher said Sept. 17 it represented Dallas private equity firm Brazos Private Equity Partners on the sale of BlackHawk Industrial Distribution Inc. to Snow Phipps Group for an undisclosed sum.
The firm’s deal team included corporate partner Jonathan Whalen and associates Joseph Orien and Thomas Canny; partner David Sinak and associate Michael Cannon on tax; and associate Krista Hanvey on employee benefits. All are in Dallas.
A Simpson Thacher & Bartlett partner in New York represented Snow Phipps.
Houlihan Lokey was Brazos’ financial advisor.
BlackHawk is an independent value-added industrial distributor of cutting tools, abrasives and maintenance, repair and operations products.
Based in Broken Arrow, Okla., BlackHawk was founded by Brazos Partners in 2010 with Bill Scheller, the former CEO and president of ORS Nasco Inc. It’s grown through 14 strategic acquisitions to become one of the top 30 industrial distributors in North America.
Randall Fojtasek, former co-founder and co-CEO of Brazos who is now managing partner of CenterOak Partners, said he plans to work with former BlackHawk CEO Bill Scheller on a third distribution opportunity.
Since inception, Brazos has managed investment funds through three vehicles with $1.4 billion of equity capital. CenterOak was founded by Brazos’ former partners and closed its inaugural fund, CenterOak Equity Fund I, at its hard cap of $420 million in 2016. It’s based in Dallas.
V&E advises Apollo funds on investment in Infrastructure Networks
Vinson & Elkins said Sept. 21 that it advised Apollo Global Management on its equity investment in Infrastructure Networks Inc. Terms weren’t disclosed.
The corporate team was led in part by Wes Jones and Chase Dalton with assistance from Devika Kornbacher, Ben Cukerbaum and David Peck.
Infrastructure Networks’ financial advisor was DCS Advisory, an affiliate of Daiwa Capital Markets America Holdings Inc. and Daiwa Securities Group Inc.
Denver venture capital firm Altira Group and Texas Ventures also provided capital.
Infrastructure Networks provides private broadband wireless LTE solutions to the energy industry through its CloudCore product. It said the funding enables it to continue to roll out its national network and IoT platform.
Chairman and CEO Scott Crist, who is also the founding partner of Texas Ventures, said the energy industry is at the forefront of a significant transformation as oil and gas companies embrace automation, analytics and machine learning to more effectively compete.
Apollo partner John Bookout said the private equity firm has dedicated considerable effort to evaluate the impact of technology on the oil and gas sector.
Bracewell aids Argo on electric line buy from Ares, Starwood
Bracewell advised Argo Infrastructure Partners on its purchase of interests in a 660-megawatt electric transmission line from Ares Management and Ares EIF and Starwood Energy Group Global for an undisclosed sum.
The team was mostly in New York and Washington, D.C., but included Houston partner Tony L. Visage, Houston/Seattle partner Lance W. Behnke and Houston partner Bruce R. Jocz.
Also pitching in were senior counsel R. Joe Hull of Austin, senior counsel Allison K. Perry of Houston and associates Christie L. Latimer and Austin C. Whitmore of Dallas.
Ares and Starwood used Norton Rose Fulbright with a team out of New York. Their financial advisors were Goldman Sachs & Co. and PJ Solomon.
The transaction has to clear regulators and is expected to close later in 2018 or in early 2019.
Hudson Transmission Partners, a unit of PowerBridge, was the developer of the project and will continue to operate and maintain the asset on behalf of Argo and other stakeholders. Construction began in 2011 and commercial operations started in 2013.
The line runs 7.1 miles from a converter station in Ridgefield, N.J., to a substation in New York City via a subsea cable beneath the Hudson River. About 87 percent, or 575 megawatts, of its capacity is contracted with the New York Power Authority through a long-term agreement.
Ares EIF partner Andrew Schroeder said in a statement that the constrained NYC-PJM market dynamics coupled with high quality, long-term contracted cash flows led to a “robust and efficient” sales process.
Himanshu Saxena is CEO of Starwood, which has raised equity commitments of $3 billion and has executed transactions totaling more than $6 billion in enterprise value.
Ares Management is a publicly traded global alternative asset manager with $121.4 billion in assets under management as of June 30. Ares EIF, Ares’ power and infrastructure unit, has made 70 equity investments in 130 power and energy infrastructure assets with an enterprise value of $20 billion.
Jones Day advises Connell on sale of Anchor/AWC to Hidden Harbor
Jones Day said Sept. 21 that Dallas partner Alain Dermarkar led the team advising Connell LP on its sale of Anchor Danly and AWC Manufacturing to Hidden Harbor Capital Partners for an undisclosed sum.
McDermott Will and Emery counseled Fort Lauderdale-based Hidden Habor with a lawyer out of Miami.
Founded in 1922, Windsor, Ontario-based Anchor Danly provides die sets, ground and machined steel plates, metal fabrication and components used to produce industrial tooling, including metal stamping and blow and injected molded tools and dies.
Andrew Joy and Chris Paldino led the investment from Hidden Harbor. Anchor Danley and AWC president Mike Hayton is staying on.
The transaction closed on Sept. 18 with financing from Czech Asset Management and financing advice from Configure Partners. Lincoln International was Anchor Danly/AWC’s financial advisor.
Drillinginfo buys Oildex for undisclosed sum
Genstar Capital-backed Drillinginfo bought oil and gas financial automation software firm Oildex from Accel-KKR for undisclosed terms.
Accel-KKR’s return on investment capital for the Oildex deal was more than 4 times, according to one report.
Irell & Manella counseled Austin-based Drillinginfo with an attorney in Los Angeles. Kirkland advised Accel-KKR with lawyers outside of Texas.
Drillinginfo assistant general counsel Shawn Shillington in Austin worked on the deal inhouse. The NYU-educated attorney previously was special counsel at Baker Botts in Austin and an associate at Debevoise & Plimpton in New York.
Drillinginfo CEO and president Jeff Hughes said Oildex will reach across the energy value chain with its solutions for automating invoicing, payments, field tickets and data exchange. Oildex is a leader in managing relations between operators and their mineral rights owners.
Oildex CEO Craig Charlton and other executives are staying on.
The deal is Drillinginfo’s first acquisition since Genstar purchased a majority stake in the company in July from Insight Venture Partners, which kept a minority stake.
SunTx Capital invests in Anchor Partners
SunTx Capital Partners said Sept. 18 that it invested an undisclosed amount in Anchor Partners.
Outside counsel couldn’t be determined by press time.
Barrett Bruce is general counsel and chief compliance officer at Dallas-based SunTx. Before joining the firm in 2005, the Texas Tech-trained lawyer was at Akin Gump Strauss Hauer & Feld.
Dallas-based Anchor provides metal manufacturing solutions to the construction, defense and transportation markets.
SunTx, which is led by Ned Fleming, raised $94.7 million for its third fund in January, according to a filing with the Securities and Exchange Commission.
UPDATES:
Oklahoma City-based Bank7, which The Lawbook wrote about earlier this month, raised $65 million in its initial public offering. The company priced 2.4 million shares at $19, versus its $18 to $21 range. HuntonAK partners Brian R. Marek and Beth A. Whitaker in Dallas counseled Bank7 while Bracewell partner William S. Anderson and associates Joshua T. McNulty and Tyler C. Lohse in Houston assisted the underwriters, which included Keefe Bruyette Woods.
Cheniere Energy Inc. said Sept. 20 that it completed its purchase of units it didn’t own of Cheniere Energy Partners LP Holdings for $580 million, which The Lawbook wrote about in June. Sidley Austin partners Tanner Groce and George Vlahakos counseled Cheniere Energy along with Sullivan & Cromwell. The conflicts committee of Cheniere Energy Partners tapped Richards, Layton & Finger with Jefferies as its financial advisor.
Two initial public offerings were taken off the drawing board. Tapstone Energy, a Blackstone-backed oil and gas E&P focused on the Anadarko Basin, withdrew its $400 million registration filed last year with no explanation. G. Michael O’Leary and Jon W. Daly at then-Andrews Kurth Kenyon were advising Tapstone and Doug McWilliams and Tom Zentner at Vinson & Elkins were assisting BofA Merrill Lynch and Citi.
NGP-backed Remora Royalties, an Austin-based owner of oil and gas mineral royalty interests, postponed its plans to offer 5.25 million shares at $19 to $21, or $105 million at the midpoint. Sidley Austin partners George J. Vlahakos and Jon W. Daly were advising the company and Latham & Watkins partners Ryan Maierson and John Greer were assisting underwriters RBC Capital Markets, Wells Fargo and UBS.