Back to School: PEGCC study finds energy fundraising surge

Private equity investment in U.S. energy deals could surge over the next several years, according to a second quarter activity report from the Private Equity Growth Capital Council.

The study, which cites Pitchbook data, found private equity firms raised roughly $21 billion for energy funds during the first half of 2015, with more than $12.7 billion of that total coming in the first quarter alone. While fundraising slipped to $8.2 billion during Q2, the quarter still ranks among the best for energy-related fundraising since 2006, according to the report. Quarterly fundraising for energy funds surpassed $8 billion just seven times between 2006 and Q2 2015, and never in back-to-back quarters.

The amassing of dry powder for energy-related assets suggests firms will be looking for opportunities in a sector that has been buffeted by volatility caused by sharp drops in oil prices. Volatility could lead to a bevy of distressed situations, and energy credit funds are looking to take advantage of the turmoil. Firms like Apollo Global Management, Blackstone Group and Riverstone Holdings have launched vehicles for investments in liquidity-starved energy assets.

Despite a strong spike in fundraising, private equity investment in energy-related deals remained relatively flat between the first and second quarters, with sponsors investing $9 billion in energy assets in Q1 and $10 billion in Q2, according to the report. The slight increase in deal volume corresponded with a larger number of deals — 38 in Q1 and 45 in Q2.

“The volume of private equity investment in energy experienced a slight bump, with larger increases in the number of deals — suggesting that firms are targeting smaller investments,” the report states. “Projections in the energy sector are uncertain as energy prices remain volatile.”

The largest energy deal of the second quarter belonged to ArcLight Capital Partners, which raised more than $5.5 billion for its latest energy fund, according to an SEC filing. ArcLight acquired Petroleum Products Corp for $1.2 billion on April 14, according to the report.

Business-to-business deals received the most investment dollars from sponsors in the second quarter, according to the PEGCC study.

Private equity invested $37 billion in business products and services companies during the second quarter, a total that received a huge boost from IFM Investors’ $5.7 billion investment in the Indiana Toll Road Concession Co in May.

The consumer products and services sector was also popular with sponsors, attracting $33 billion from sponsors in Q2.

Steve Gelsi contributed to this report