By Claire Poole
(Sept. 7) – M&A among middle market companies in the U.S. is still booming.
According to recent data released by PitchBook, there were 1,358 middle market deals involving private equity in the first half of 2018, up 16 percent over the same period last year, with deal values hitting $178.5 billion, 5 percent higher.
And here’s a startling finding: That the middle market made up 70 percent of money invested by all U.S. private equity in the first half. The firm expects that percentage will come down by year-end when a few mega-deals close, including the Blackstone Group’s $20 billion purchase of 55 percent of Thomson Reuters’ financial and risk business.
PitchBook said the first half wasn’t great for energy deals, which have steadily shrunk in number over the past few years, but firms are becoming more active in the information technology and financial services sectors.
It wasn’t all good news, however. The firm found that U.S. private equity-backed middle market exits were down severely in the first half of the year from the same period last year, numbering only 183 with a value of $14.8 billion versus 476 with a value of nearly $44 billion.
Whether it’s the booming economy or tax cuts, PitchBook says businesses are becoming more valuable, which is causing the proportion of private equity-backed middle-market exits to dwindle.
Texas lawyers saw their fair share of middle market private equity deals this past week along with a couple of big M&A and capital markets transactions.
Attorneys in the state worked on 14 transactions valued at more than $5 billion, lower than the 15 deals the week before worth $20.7 billion. The drop-off wasn’t surprising leading up to the three-day Labor Day weekend.
Fifteen law firms and 92 Texas lawyers were involved versus 14 law firms and 79 Texas lawyers the previous week.
M&A and private equity made up 11 of the transactions worth almost $4 billion while capital markets generated three deals valued at more than $1 billion. Read about them below.
Kirkland, V&E advise on Ascent’s asset purchase from Salt Fork
Kirkland & Ellis said Aug. 31 it counseled private equity-backed Ascent Resources on its acquisition of oil and gas properties in the Utica Shale from Riverstone Holdings-backed Salt Fork Resources.
Terms weren’t disclosed but the deal was a material piece of the $1.48 billion in assets that Ascent purchased in Ohio’s Utica Shale from Hess Corp., CNX Resources and Utica Minerals Development, a Kirkland spokeswoman said.
Ascent is backed by Energy & Minerals Group and First Reserve and is led by former executives at Chesapeake Energy Corp. and the late Aubrey McClendon’s American Energy Partners, including CEO Jeff Fisher.
The Kirkland team advising Oklahoma City-based Ascent included corporate partners Bill Benitez, Chad Smith, Ryan Gorsche and Anthony Speier, associates Mark Kunzman and Tom Hillebrand, tax partner David Wheat and capital markets partner Matt Pacey.
Salt Fork was represented by Vinson & Elkins with a team from New York, aided by a Texas contingent that included Houston partner Shay Kuperman and Dallas-based associates David Peck and Lauren Meyers.
On the property purchase from Hess, CNX and Utica Minerals for $1.265 billion, Ascent used Porter Hedges partner Scott Muehlberger and associates Mark Jones and Jonathan Strom along with a partner in its Oklahoma City office.
Latham & Watkins partner Robin Fredrickson and associates Sean McKinley, Corey Allen and Rebecca Kendall represented CNX/Hess with help from tax partner Tim Fenn and associate Jim Cole and oil and gas partner Thom Brandt.
The Texas Lawbook previously reported in July that Ascent Resources-Utica had picked up Ohio Utica assets from Hess and CNX for $800 million in cash.
The Salt Fork transaction involved the contribution of all its Utica Shale assets to Ascent in exchange for common equity. There also was a cash contribution to Ascent from Riverstone.
Ascent said it funded the acquisitions with $575 million in cash proceeds raised from the common equity issuance, $465 million in common equity issued directly to Utica Minerals Development and Salt Fork and $440 million in borrowings under its revolver, which was increased to $1.85 billion from $1.4 billion.
Bracewell aids AP Energy, South Field on $1.3B power plant
Bracewell said Aug. 27 it represented Advanced Power affiliate AP Energy Holdings Inc. and South Field Energy on the financing and equity arrangements for the construction of the $1.3 billion South Field Energy project.
The team consisted mostly of attorneys in the firm’s New York and Washington, D.C. offices but included partners Thomas M. Tomlinson in Houston and Timothy A. Wilkins in Austin.
Other Texas lawyers in the group were senior counsel Simon E. Stevens and associates Kate B. McGregor, Jason W. Keating, Shannon M. Rice and Melanie C. Goebel, all of Houston.
Norton Rose Fulbright counseled the senior lenders to South Field with most of the team in New York and Washington, but senior counsel Amy Mitchell in Austin also contributed.
Other law firms working on the matter with attorneys outside of Texas were Orrick, Milbank, Tweed, Hadley & McCloy, Shearman & Sterling, Latham & Watkins and Vorys Sater Seymour & Pease.
The combined cycle, natural gas power plant is located near Wellsville, Ohio. It’s expected to have a capacity of 1,182 megawatts once it’s completed, which is set for the second quarter of 2021. It will sell energy, capacity and ancillary services into the PJM market in the northeast.
Advanced Power, which led the development of the facility, will be the construction and asset manager.
Bracewell assisted AP Energy and South Field with all aspects of the project, including commercial and regulatory arrangements, project financing and equity placement.
That included representing South Field in its senior secured credit facility arranged by CIT Group, Crédit Agricole, GE Energy Financial Services and NH Investment & Securities as the initial coordinating lead arrangers.
Bracewell also represented AP Energy in connection with the placement of equity in South Field. The investor group consisted of RS Global Capital Investment, a joint venture between Development Bank of Japan Inc. and Showa Shell Sekiyu K.K.
Other investors were Kyushu Electric Power Co., Shikoku Electric Power Co., NH-Amundi Asset Management and PIA Investment Management and an affiliate of Bechtel Development Co.
Bracewell counsels Apache on $1B notes, tender offers
Bracewell said Aug. 28 it represented Apache Corp. on an underwritten public offering of $1 billion in 4.375 percent notes due 2028.
The team included Texas partners Troy L. Harder and Matt Paulson and associates Kathy Witty Medford and Jay N. Larry and attorneys in the firm’s New York office.
Apache is using the net proceeds to purchase part of its outstanding senior debt in cash tender offers for 10 series of its debt securities with a maximum purchase price of $820 million.
The book-running managers for the notes offering and the dealer-managers for the tender offers are BofA Merrill Lynch, Credit Suisse and J.P. Morgan.
Jones Day, V&E advise on Rex’s $600M asset sale to PennEnergy
Jones Day said Aug. 30 it advised bankrupt Rex Energy Corp. on the sale of its almost all of its assets to EnCap Investments-backed PennEnergy Resources for $600.5 million.
The assets include $29.5 million in cash accounts held by Rex to collateralize firm transportation contracts that will be released to PennEnergy when the deal closes.
The Jones Day team included restructuring partner Thomas A. Howley in Houston.
Vinson & Elkins said it assisted PennEnergy. The team members from Texas were led by partner Bryan Loocke with assistance from senior associate Joclynn Townsend and associates Cesar Leyva, Garrick Smith, Andrew Geppert and Caroline McDonald.
Also advising were partner Todd Way and senior associate Julia Pashin on tax; partner Sean Becker on labor/employment; associate Kristy Fields on executive compensation/benefits; partner Larry Nettles on environmental; partner Matt Moran and counsel Jordan Leu and Marc Fuller and senior associate David Currie on litigation; and partner Matt Strock on corporate.
V&E also advised PennEnergy on the deal’s funding, including equity contributions from its existing owners and its revolver from a consortium of banks co-led by Wells Fargo and JP Morgan.
The work on the debt financing was led by partner Guy Gribov with assistance from associate Alex Cross.
JP Morgan was PennEnergy’s financial advisor, including Mark Deverka and Garret Holt in Houston.
PennEnergy will have funded debt of 2 times Ebitda and expects to generate free cash flow when the deal closes.
Rex filed for bankruptcy protection on May 18 with $884 million in outstanding funded debt, including $617 million due in 2020. Its counsel was Jones Day along with Buchanan Ingersoll & Rooney. Reed Smith counseled the noteholders.
The transaction was approved by the U.S. Bankruptcy Court for the Western District of Pennsylvania. The deal is expected to close Sept. 28.
PennEnergy will end up operating 329 horizontal producing shale wells and control 203,500 gross leasehold acres, primarily in the Pennsylvania counties of Butler, Beaver and Armstrong north of Pittsburgh.
The properties are estimated to have net proved reserves of 8.5 trillion cubic feet of natural gas equivalents, 1.7 trillion cubic feet equivalent of which are proved developed producing. About 34 percent of the company’s reserves will be derived from natural gas liquids.
With gross production of 700 million cubic feet per day of natural gas equivalents and net production of 450 million, PennEnergy believes it will be the 10th largest natural gas producer in Pennsylvania and the third largest headquartered in the Commonwealth.
PennEnergy chairman and CEO Richard D. Weber said in a statement that almost all of the combined assets of the two companies are in the core of the Marcellus Shale. “With nearly 20-years of drilling inventory, we have the opportunity to continue delivering growth at attractive rates of returns for many years to come,” he said.
PennEnergy COO and president Greg Muse said most of Rex’s assets are contiguous to its operations, giving it the opportunity to improve on its industry-leading costs per unit. The company plans to operate two horizontal rigs on the combined properties.
PennEnergy is a privately-held natural gas producer founded by Rich Weber and Greg Muse in 2011. It also has backing from Wells Fargo Energy Group.
Akin, Willkie aid on Genesis’ asset sale to Tailwater’s Silver Creek
Genesis Energy in Houston said Aug. 29 that it agreed to sell its Powder River Basin midstream assets to an affiliate of Tailwater Capital-backed Silver Creek Midstream for $300 million in cash.
The Texas Lawbook learned that Akin Gump Strauss Hauer & Feld assisted Genesis with a team led by partners Vince Kendrick and Patrick Hurley and Willkie Farr & Gallagher partner Archie Fallon counseled Silver Creek.
Genesis plans to use the proceeds to reduce the balance outstanding under its revolver.
The assets include Genesis’ Powder River Basin pipeline along with the related crude oil gathering system and rail facility.
Genesis also said it executed an amendment to its revolver that sets the bank leverage ratio to 5.5 times through the remaining term of the facility, which is due in 2022.
The sale has to clear regulators but is expected to close in the third quarter.
News Corp’s Move buys Austin-based Opcity for $210M
Billionaire Rupert Murdoch’s News Corp said Aug. 29 that its unit Move Inc., which operates realtor.com, agreed to buy Austin-based Opcity for $210 million.
Opcity is a real estate technology platform that matches qualified home buyers and sellers with real estate professionals in real time.
Out-of-state lawyers from Gibson, Dunn & Crutcher represented News Corp and Gunderson Dettmer aided Opcity.
Opcity’s general counsel is Courtney Dickey, who has been with the company since July of last year.
Before that the Baylor-educated lawyer was senior director of legal for the Americas at Expedia Group for two years, in the legal department at HomeAway.com for six years and a senior contracts associate at Freescale Semiconductor for almost two years.
News Corp said Opcity will broaden realtor.com’s lead generation product portfolio.
Digital real estate services have become News Corp’s fastest growing segment. In the 12 months ending June 30, Move’s real estate revenues increased 20 percent while its overall sales jumped 15 percent. Move has nearly doubled its revenues since News Corp’s acquisition in 2014 to $452 million in fiscal 2018.
News Corp also owns 61.6 percent of REA Group, the operator of Australia’s top residential property website realestate.com.au. REA holds a 20 percent stake in Move.
Opcity has grown its U.S. client base to more than 5,000 brokerages and 40,000 agents since 2015. Its customers include Better Homes & Gardens, Keller Williams, ReMax, Century 21 and Berkshire Hathaway Home Services.
The transaction has to clear regulators and holders of the majority of Opcity shares. Opcity CEO Ben Rubenstein is staying on.
HuntonAK, Bracewell work on proposed IPO for Bank7
Oklahoma City-based Bank7 filed for a $75 million initial public offering, using Texas lawyers to advise it.
HuntonAK partners Brian R. Marek and Beth A. Whitaker in Dallas are counseling Bank7. Bracewell partners William S. Anderson and Joshua T. McNulty in Houston are assisting the underwriters, which include Keefe Bruyette Woods.
Bank7 plans to trade on the Nasdaq under the ticket symbol BSVN.
The proceeds will go to its selling stockholders, which include trusts belonging to Bank7 chairman Williams B. Haines and his daughters, executive VP and chief marketing officer Lisa K. Haines and Julee S. Lawrence Thummel.
Porter Hedges advises Par on $45M refining purchase from Island
Porter Hedges said Aug. 30 it represented Houston-based Par Pacific Holdings on its purchase of refining units from Island Energy Services for $45 million.
The transaction also will include additional monies for the acquisition of hydrocarbon and non-hydrocarbon inventory.
Island previously announced that it was ceasing its Hawaii refining operations.
The Porter Hedges team was led by partner James Cowen and included partner Ben Rajabi and associates Adam Nalley and Emily Ashby. Also pitching in were partners Kevan Richards, David Martin, Joyce Soliman and Craig Bergez, counsel Beverly Young and associate Thomas Boyd.
The units, which are located near Par’s Kapolei refinery, will be used to supplement Par’s operations in supplying Island so Island can fulfill its contractual obligations with Hawaiian Electric, Maui Electric, Hawaii Electric Light and Kauai Island Utility Cooperative.
Par owns, manages and maintains interests in energy and infrastructure businesses.
Wilson Sonsini counsels Infinite io on $10.3M funding
Infinite io, an Austin provider of data storage intelligence systems, raised $10.3 million in Series B funding.
Investors were led by former Motorola CEO and Cleversafe chairman Chris Galvin and his son David Galvin, who previously worked at IBM and is now with Three Fish Capital. Chicago Ventures, John Anderson, Dougherty & Co., Equus Holdings and PV Ventures also invested.
Other investors included Dean Drako, founder and former CEO of Barracuda Networks and founder and CEO of Eagle Eye Networks; Brett Hurt, co-founder and former CEO of Bazaarvoice and co-founder and CEO of data.world; and Bill Miller, co-founder and former CTO of Storage Networks and CEO of X-IO-technologies.
Infinite io’s outside legal counsel was Wilson Sonsini Goodrich & Rosati partner Robert Suffoletta in Austin. Winston & Strawn counseled the investors with an attorney out of its Chicago office.
Co-founder and CEO Mark Cree said in a statement that Infinite io is disrupting the data storage industry by lowering costs through the migration of inactive data to a cloud while providing performance for data that’s in use.
The new funds will be used to scale operations globally and accelerate the company’s growing momentum in the market.
Infinite io said its product is being used by top enterprises in media and entertainment, genomics, higher education and research, large-scale website development and government.
Morgan Lewis aids Megger/AVO on Baker acquisition from SKF
Morgan Lewis said it represented the U.K.’s Megger Group and its U.S. unit AVO International on a carve-out acquisition of the Baker Instrument Co. division of SKF Group’s SKF USA Inc. Terms weren’t disclosed.
Working on the deal were Houston partner Sameer Mohan, who joined the firm in February from Baker & Hostetler, and associates Tara McElhiney and Michael Jones. Reed Smith’s Pittsburgh office represented the sellers.
Baker Instrument claims to be a world leader in testing and diagnosing electric motors and other rotating machines. Megger CEO Jim Fairbairn said that Baker’s equipment and online testing capability will complement its product range.
SKF acquired Baker for $14 million in 2007. But recently it’s been selling off non-core businesses, including its linear and actuation technology business SKF Motion Technologies to the venture capital firm Triton for $310 million. So far it’s divested $760 million in assets.
Ewing & Jones advises CrowdOut on term loan to Shale Support
Randolph Ewing and Ben Hughes with Ewing & Jones in Houston counseled Austin-based CrowdOut Capital on a multi-million term loan to OFS Energy Fund-backed Shale Support.
Reed Smith counseled co-lender Encina Equipment Finance with attorneys in New York and Chicago. An attorney at Baker Donelson in Atlanta represented Shale Support.
Shale Support provides frac-sand and logistical solutions to the oil and gas proppant market. It’s led by co-founder and president Jeff Bartlam.
The term loan is expected to help the company finance growth capital expenditures and increase production at its two sand mines, which span 1,000 acres and contain 100 million tons in the southeastern U.S.
Led by CEO Alex Schoenbaum, CrowdOut said it’s a pioneer in non-bank private lending for expanding middle market companies, having originated more than $135 million in loans.
It said traditional institutions – i.e., commercial banks – aren’t lending to the oil and gas industry, so it’s stepped in. Its clients generate annual sales of between $10 million to $500 million.
V&E advises Caelus on Alaskan acreage sale to Eni
V&E advised Caelus Alaska Exploration Co. on its agreement to sell 124 exploration leases covering 350,000 acres in Alaska’s Eastern North Slope to Italy’s Eni for an undisclosed sum.
The corporate team was led by Danielle Patterson, a Houston-based senior associate, as well as Dallas associates Danny Nappier and Ed Vaunder. V&E lawyers in New York were also involved.
Eni will hold all the leases with a 100 percent working interest.
Eni said the area is considered a prime region with high potential and multiple proven plays. It’s located between Prudhoe Bay and Point Thompson, two of the largest hydrocarbon discoveries in North America, and close to existing infrastructure and the Trans-Alaska Pipeline System.
Eni said it’s present in 21 oil and gas fields in the U.S., 11 of which it operates, with a net daily production of 60,000 barrel of oil equivalent per day.
Egan Nelson represents GDS Link on Serent investment
Egan Nelson partner Tom Nelson in Austin counseled Dallas credit risk management software provider GDS Link on an undisclosed minority investment from Serent Capital.
Morris, Manning & Martin represented Serent out of Atlanta.
Founded in 2006, GDS Link helps clients manage their credit risk strategies while improving their lending and account management efforts. It claims to have aided thousands of companies around the world in financial services, retail, energy, telecommunications and transportation.
Earlier this year, GDS Link acquired U.K.-based Fraudscreen, which provides analytics to identify first-party fraud. It also has locations in Spain, Turkey, Argentina and the Philippines.
CEO Paul Greenwood said in a statement that it was a good time for the fast-growing company to bring in a partner to help it accelerate its expansion strategy.
This is the 12th investment in financial technology for San Francisco-based Serent, which has raised $1 billion in capital since its 2008 inception. Partner Lance Fenton led the deal.
Winston & Strawn counsels Fabulous Floors on funding
Winston & Strawn represented Fabulous Floors on its recent funding from NewSpring, Tightrope Capital and Pouilly Investment Co. Terms weren’t disclosed.
The lead partners were Richard H. Frye and Jordan M. Klein in Dallas. Seyfarth Shaw out of Chicago represented the investors.
NewSpring announced the investment Aug. 30.
Fabulous Floors is a dealer and installer of commercial and residential flooring. Founded in 1987, it focuses on the commercial segment with flooring used in renovation, replacement and expansion work and new construction projects. It’s based in Carrollton but has other locations in Texas as well as an office in Bend, Ore.
Founder and president Joel Alhadef said in a statement that the funding will help the company strengthen its position within its existing geographic footprint and expand into new markets.
Kristin Lee led the investment from NewSpring, which is based in Radnor, Pa., and has raised $1 billion in capital supporting 100 portfolio companies.