By: Joshua Mann – Houston Business Journal – Private equity investment in the oil and gas business could begin to pick up once again in the near term as upstream companies divest non-core assets from their portfolios.
A number of private equity investors have been sitting on the sidelines of the market over the past few years, leaving them with a lot of funding to put to work, said Seenu Akunuri, principal for PricewaterhouseCooper’s U.S. oil and gas deals practice.
“They have a lot of cash that they want to put to the right set of portfolios,” Akunuri said. “There will continue to be a focus on having these smaller portfolio companies acquire these non-core assets being divested by larger companies so they can build scale.”
In Houston, that means more money flowing toward management teams based in the city — and an additional pool of potential buyers for the large Houston companies looking to sell non-core assets.
Once the private equity companies build scale at portfolio companies, they could sell upward to larger entities, but they could also make an exit onto public markets, Akunuri said.
“If the trend continues with commodity prices, I would not be surprised to see a few more (initial public offerings) coming up,” Akunuri said.
The exit piece of this is important because it’s something private equity companies have had trouble with since a little before the Covid-19 pandemic began.
“When a private equity company makes an investment, they always have an exit plan,” Akunuri said. “Those exit plans have all been laid to waste in the last couple of years.”
Because dropping commodity prices were pushing the values of existing private equity portfolios down, and because exit plans were falling apart, private equity companies have recently been more reticent to put money to work, Akunuri said. But the past six months or so have changed that, he noted.
“Now they’re actually starting to look to find the right management teams so they can get these portfolio companies together and bring a larger scale,” Akurnuri said.