Natural Resources LBO / Buyouts
Very basic question, apologies if dumb. What are the verticals in NatRes that get the most buyout activity and why? Also would love to get some input on which verticals are less "pigeon-holey"
From my understating, the verticals are O&G, power, utilities, metals and mining, chemicals. Am I missing any?
Thanks all
interested as well
Def not mining. There are at best a handful of mining focused funds (RCF, Orion, Denham etc.) and most of the buyers are strategics. It's not not a sponsor friendly space IMO, lots of operational focus and expertise required, heavy heavy development / capex depending on stage, and often pretty shitty jurisdictions just off the top of my head
Appreciate the input. When you say it’s not a sponsor friendly place, are you referring to NatRes as a whole or mining specifically
Mining only, excluding the "metals" part. All the processing / refining components that fall outside of the actual mining are probably more sponsor friendly.
Anything non-upstream (the actual E&P and mining) are all LBO/buyout candidates. There are dedicated energy and infra funds that will invest in midstream, downstream, and even oilfield services. PU&I and chemicals are definitely buyout worthy and even industrials-focused PE funds will dabble in this space (building materials, electrical infrastructure, etc.). For the upstream sub-vertical within O&G and metals & mining, even though they don't get looks from PE, there has been a rise in the last half decade or so in royalty & streaming funds. As for the latest developments/trends in the industry, most natural resource groups are beginning to expand into the renewable energy/energy transition/battery metals space. In terms of least "pigeon-holey" verticals, anything non-upstream and non-midstream will be fine (operate like regular companies you can throw a vanilla DCF template at). Upstream: too much NAV and weird accounting stuff that's very niche. Midstream: complex structures and modelling for MLP's that operate more similarly to REIT's. This is solid info (especially coming from a prospect), give me bananas.
EDIT: Also congrats on GS NR team since they're the only bank that groups those verticals together. Most places have separate PU&I coverage groups, have the chemicals and metals & mining verticals lumped under industrials, and have O&G run independently out of Houston.
Somebody put their head down and learnt a thing or two :)
Well said, very much agree on the upstream view, especially on the mining side.
Yessir appreciate it. Can you give me an offer for your group then? :)
Why is it there is so much m&a activity between midstream O&G companies but comparatively so few between upstream O&G companies? On the SEC I can find dozens of decks for midstream MLPs but like 0 for upstream. Please feel free to correct me.
BofA does the same for NR Group
Do oil drillers ever get any PE love? Eg Noble, Seadrill etc
Absolutely not — absurdly capital intensive businesses subject to day rate fluctuations which are driven by rig supply/demand (which has had a surplus for several years), plus levered to offshore production only and decently specialized assets (deepwater, ultra deep water, jack ups, etc.)
Downstream. Not upstream as that needs real domain knowledge above and beyond what MBA PE associates can crank out in their LBOs
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