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Cerberus to make 4x its money with Keane IPO

Cerberus Capital Management stands to quadruple its investment with the IPO of Keane Group.

Keane went public Jan. 20. Shares of the Houston fracking company changed hands at $21.93 in midday trading Friday on volume of 12.06 million.

Late Thursday, Keane had priced its offering, selling 26.7 million shares at $19 each, the top of its IPO range. Keane had expected to sell 22.3 million shares at $17 to $19 each, according to SEC filings.

Keane is an oil-and-gas hydraulic-fracturing and well-completion-services firm. Its main services include horizontal and vertical fracturing, wireline perforation and logging and engineered solutions, the company’s regulatory filing said.

The company, citing preliminary results, reported revenue in the range of $149 million to $151 million for the quarter ended Dec. 31, the Jan. 17 SEC filing said. This is more than triple the $54 million for the year-earlier period.

Cerberus’s investment in Keane dates to 2011 when the firm acquired 80 percent of Keane & Sons Drilling for $100 million cash, according to Capital Alliance. In 2013, Keane acquired the wireline technologies division of Calmena Energy Services as well as the assets of Ultra Tech Frac Services in separate transactions, filings said.

In March 2016, Keane bought Trican Well Services for $248 million. The deal included $199.4 million in cash, regulatory filings said.

In all, Cerberus invested about $300 million in Keane. It’s unclear whether the company paid out any dividends or whether Cerberus has gotten any of its money back. Cerberus, citing the quiet period associated with the Keane IPO, declined comment. Keane did not respond to repeated calls for comment.

The company itself is offering 15.7 million shares in the IPO, while a selling stockholder is providing 11.06 million. Keane Investor Group Holdings LLC owned nearly all, 99.9 percent, of the company before the IPO. This falls to 75 percent after the IPO and exercise of the over-allotment option. (Underwriters can buy another 4.014 million Keane shares via the greenshoe.)

Private equity firms typically do not sell shares when their portfolio companies go public. Cerberus appears to be offering stock in the IPO. Keane Investor Group, which is composed of Cerberus, Trican Well CEO Dale Dusterhoft and Keane family members, is selling 11.06 million shares in the deal.

Cerberus owns 61.6 million shares, or 76.3 percent, of Keane Investor Group. This apparently means that Cerberus is offloading roughly 8.4 million shares in the IPO. At $19, Keane’s IPO price, this values the sale at $210.14 million.

It also leaves Cerberus with 55.13 million shares of Keane. Cerberus’s remaining stake, at $21.93 a share, is valued at about $1.2 billion. Including paper gains, and the $210.14 million from the sale of stock, Cerberus stands to make 4x its money.

It’s unclear which funds Cerberus used to invest in Keane. Cerberus Institutional Partners IV collected $7.5 billion in 2006. CIP V closed on $2.61 billion in May 2013.

Executives for Cerberus, citing the IPO’s quiet period, declined comment. Keane could not be reached for comment.

A private investment firm, Cerberus has $30 billion under management. It invests in distressed companies and debt.

Cerberus does not shy away from controversial investments. The firm came under considerable scrutiny for its investment in Freedom Group, now known as Remington Outdoor, which made a rifle used in the 2012 Newtown, Connecticut, school shooting. Cerberus pledged to sell Remington after the attack but still owns the gun maker.

Fracking also has its detractors. The process has been blamed for causing earthquakes, allegedly contaminating nearby groundwater with methane gas and toxic chemicals, and causing health problems including asthma, heart attacks and cancer, according to reports.

Action Item: Contact Keane CEO Gregory Powell at +1 713-960-0381

Photo courtesy ©iStock/dgdimension