Eoin Treacy's view -
The four biggest private-equity firms have raised about $30 billion to invest in Energy deals. They don’t all agree on how to spend that money.
Carlyle Group LP is prepared to bet that oil prices have bottomed out and sees now as the best time to deploy its money, co-founder David Rubenstein said last week. Apollo Global Management LLC says the sell-off in oil isn’t over yet and the highest-returning deals are still on the horizon.
“There will be attractive opportunities to buy now,” Rubenstein said March 23 at the SelectUSA Investment Summit in Washington. Greg Beard, who leads Energy investing at Apollo, sees a different timeline: “The worst, the problems, are yet to come,” he said in an interview last month.
Private-equity firms are trying to take advantage of crude’s 54 percent plunge since June, which has made targets cheaper. Carlyle, Apollo, Blackstone Group LP and KKR & Co. raised about $30 billion in the past 18 months for Energy- related deals.
How and when they spend that money depends on their view on the future direction of oil. Apollo, led by Leon Black, has recently bought debt of companies struggling to meet their repayments because the firm expects oil will remain at multiyear lows, potentially allowing it to take control later. Carlyle has raised billions to acquire companies in leveraged buyouts because it expects oil to start rising, allowing it to sell its holdings at a profit later.
“Oil prices will come back a bit,” Rubenstein said. “If you can buy now at relatively low prices and hold on for a few years, you’re going to do quite well.”
The speed with which the major private equity firms have been able to raise large pools of capital to invest in the Energy sector is a testament to just how much liquidity is still sloshing around the system. There are plenty of opportunities to acquire attractive assets as overleveraged players are squeezed by lower than expected prices for both oil and gas. The fact that private equity has already become so active suggests they will aid in base formation development. However base formation development and recovery are not the same thing.
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