PE pioneer Thomas H. Lee passes away; ArcLight’s Great River Hydro exit plus evolution of infrastructure investments

The private equity world mourns the passing of Thomas H. Lee.

Good morning dealmakers, thank goodness it’s Friday!

It’s Obey Martin Manayiti here with the newsletter, and as usual, we are capping this week with a trend that caught my attention recently.

Today we are looking at eight water focused infrastructure deals and then turn to the ArcLight Capital Partners’ exit of Great River Hydro to Hydro-Québec for approximately $2 billion, and thoughts from Goldman Sachs executives on how infrastructure investing has evolved over the years from a “boring” space to a very competitive one.

Some sad news from Lee Equity Partners, which announced the passing of the firm’s founder and chairman, Thomas H. Lee. There’s more on all of this news, below.

Water, Water Everywhere: The appetite to upgrade the country’s battered infrastructure has been growing over the years among policy makers, investors, developers and other stakeholders. In 2021, President Joe Biden signed the bipartisan Infrastructure Investment and Jobs Act that is aimed at overhauling US infrastructure. Private equity firms have been busy too, picking up deals in the infrastructure space.

Boyne Capital, based in Miami, is partnering with management in acquiring McKee Utility Contractors, a water and sewer infrastructure services platform that focuses on pipeline installation, replacement, tunnelling, and boring for water, wastewater, and storm water utility customers.

Founded in 1978, McKee serves municipal and utility customers across expanding population centers in Texas, Oklahoma and Arkansas, presenting significant runway for continued growth.

“We look forward to partnering with the McKee team and helping them capitalize on the considerable market opportunity available to grow both organically and strategically, while continuing to offer best in class service to their blue-chip customer base,” said Roman Krislav, Boyne Capital managing director in a statement.

KKR made a significant investment in Virginia Beach, Virginia-based Groundworks, a foundation repair and water management services company. Founded in 2016, Groundworks’ brands have served over one million customers in the US.
“Groundworks provides essential and highly technical services to homeowners across the country, with a differentiated business model and focus on customer excellence,” said Felix Gernburd, partner at KKR, in a statement.

Chicago-based Wind Point Partners acquired Saugus, California-headquartered Hasa, a provider of water treatment services. Hasa’s senior leadership team retained a “meaningful” ownership stake alongside Wind Point.

Hasa manufactures and distributes chemicals and ancillary products used for critical sanitization and maintenance of water systems, including swimming pools, water tanks and containment vessels for recreational, industrial and municipal end markets.

“Wind Point is a longtime investor in specialty chemicals and route-based services,” said Alex Washington, Wind Point’s managing director. “Hasa operates a differentiated distribution model that ensures customers receive safe, effective water treatment products. We are thrilled to partner with the company to build upon its reputation for exceptional service in this critical, growing market.”

Hydro Power: ArcLight Capital Partners managing director Andrew Brannan told me in an interview earlier this week that long-term power sales contracts, coupled with other organic strategies, propelled the monetization of Great River Hydro, a Westborough, Massachusetts-based hydroelectricity provider that was sold to Hydro-Québec for approximately $2 billion in a deal that closed earlier this month.

Documents from MainePERS Private Market Investments, a co-investor in Great River Hydro, show that it generated an IRR of 41.3 percent.

Great River Hydro owns 13 hydroelectric generating stations with a total capacity of 589 megawatts along New England’s Connecticut and Deerfield rivers, as well as a portfolio of co-located battery storage and solar development projects, representing one of the largest conventional hydroelectric portfolios in New England.

The generated power can service more than 213,000 homes per year, the company said.
But to grow the company, ArcLight implemented three strategies upon acquisition. These are capitalizing the company, commercializing it, and overhauling the management team.
When the firm acquired Great River Hydro, the company had no long-term power sales agreements or contracts in place. Within the renewable energy space, securing long-term and lucrative contracts has been a challenge for many developers.

Among the long-term agreements is a 30-year contract with Green Mountain Power, which serves approximately 266,000 residential and business customers in Vermont.

“We thought it was a favorable trade-off of risk and reward to contract at a fixed power price offtake for 30 years,” Brannan said. “It’s ultimately an evaluation we make on a case-by-case basis, but here we thought it was accretive to the overall platform.”

Infrastructure Assets: Once perceived as boring, the world of infrastructure assets has come to be one of the competitive and most sought-after investments, noted some Goldman Sachs Asset Management executives yesterday at a virtual media roundtable yesterday dubbed ‘Investing in the Evolution of Infrastructure’.

“When we started investing, infrastructure was considered quite boring, I think wrongly so because these businesses, by the way, are not at all boring,” said Philippe Camu, chairman and co-chief Investment Officer for Infrastructure at Goldman Sachs Asset Management, adding that there is a constant addition of new things that are coming on to what was deemed to be essential infrastructure over the years.

To put things into perspective, infrastructure focused investments have moved in different waves, starting with transport and energy focused assets, regulated utilities which includes renewables, then came the digital communication wave which includes broadband, fiber as well as data centers and now social infrastructure which, for example, include healthcare where emphasis is on infrastructure that helps prevent and dictate diseases, said Camu.
Infrastructure related deals are one of the areas that we are also keen to cover here at PE Hub.

Weekend listening. In the final episode of Private Markets and the end of Cheap Money, we hear from LPs and GPs who share what key indicators they keep their eyes on to help make sense of the rising interest rate environment.

You can listen to the podcast here.

Listen to the first four episodes in the series here.

Deeply missed: Lee Equity Partners shared some sad news following the death of the firm’s founder and chairman, Thomas H. Lee.

Here is a statement from the firm:

It is with deep sadness that we announce the passing of our Founder and Chairman, Thomas H. Lee. He was a great partner and wonderful friend whose vision will continue to influence us for many years to come.

Tom was a pioneering investor who helped create the private equity and leveraged buyout industry as we know it. Before founding Lee Equity Partners in 2006, Tom built Thomas H. Lee Partners (THL), which raised the largest private equity fund in the world in 2001 under Tom’s leadership. Since 1974, Tom has been responsible for investing over $15 billion of capital in hundreds of transactions. Tom’s long and distinguished career was highlighted by the many companies, entrepreneurs and investors who were his partners and friends over almost half a century of investing.

Tom, a prominent philanthropist, was committed to numerous charitable and educational organizations including his alma mater, Harvard College. Tom was passionate about providing access to care and supported this goal through his commitment to NYU Langone Medical Center. Tom loved New York City and was devoted to many of its most important arts and civic organizations. He served as a trustee of Lincoln Center for the Performing Arts, The Museum of Modern Art and the Whitney Museum of American Art, among others.

Tom’s determination, commitment and strategic vision will continue to inspire all of us at Lee Equity Partners. He was a leader, a friend, a partner, and our mentor. We know he will be proud as the firm continues on, with strength. We will work every day to meet the high standards he has set for us and the entire industry. On behalf of our employees, management teams and investment partners, we mourn his loss and extend our deepest sympathies to his family.

We ask that you please respect the family’s privacy during this very difficult time. If you have any questions, please don’t hesitate to reach out to any of the Partners at Lee Equity.

On behalf of PE Hub and Buyouts, we offer our condolences.

That’s it for me today.

Craig McGlashan, our PE Hub Europe editor, will be back on Monday with the Wire.
Have a good weekend.