Group Led by K.K.R. to Buy Samson for $7.2 Billion in Largest LBO of Year

A consortium led by Kohlberg Kravis Roberts agreed on Wednesday to buy the Samson Investment Company, one of the largest privately held energy companies in the country, for about $7.2 billion. It would be one of the biggest leveraged buyouts since the financial crisis.

Under the terms of the deal, K.K.R. and its partners will buy all Samson assets except the company's onshore Gulf Coast and offshore deep-water Gulf of Mexico facilities. Those will continue to be owned by Samson's founding Schusterman family, which is still based in Tulsa, Okla.

K.K.R. is teaming up with an eclectic group: Itochu, a Japanese conglomerate, and two other private equity firms, Natural Gas Partners and Crestview Partners.

The deal is the biggest leveraged buyout of the year, topping the $5.7 billion takeover of Kinetic Partners by Apax Partners. K.K.R. itself claimed one of the biggest leveraged deals of 2010 -- the $5.3 billion acquisition of Del Monte Foods.

Article on Dealbook below:
http://dealbook.nytimes.com/2011/11/23/k-k-r-led-g...

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Comments (19)

Nov 23, 2011

Interesting story. I am curios as to how KKR goes about putting a deal like this together, since what I gather on this website they don't really have many energy bankers. I say that because people always talk about energy banking / energy PE as pigeon holing people and disqualifies them from mega firms like KKR.

So do you think KKR just provided the money and teamed up with a firm like Natural gas partners who provided all the expertise & grunt work? Or how does that work for a mega fund like KKR who many say look down on energy bankers, etc.??

Nov 23, 2011

kkr has an energy team and is currently raising an energy fund that already has $1B+ commitments. they likely just brought in co-investors because the equity required for this deal is massive

plenty of experience in the space. ex:
http://dealbook.nytimes.com/2011/06/01/k-k-r-ventu...

Nov 23, 2011
frank_reynolds:

kkr has an energy team and is currently raising an energy fund that already has $1B+ commitments. they likely just brought in co-investors because the equity required for this deal is massive

plenty of experience in the space. ex:
http://dealbook.nytimes.com/2011/06/01/k-k-r-ventu...

Their energy fund is led by some absolute bosses from the E&P sector (Founding principal sits on board of Encana, was co-president of Jefferies Randall & Dewey, a practice she sold to Jefferies, prior to that was a CEO succession candidate at Texaco). Other notables include the other co-head of J R & D, who was an SVP at El Paso, and a member with 30+ years at Chevron. These guys know what they are doing... East Resources - they absolutely murdered it on that investment.

Nov 23, 2011

Third biggest it seems.

Nov 23, 2011
whateverittakes:

Third biggest it seems.

It's second behind BX's buyout of Centro Properties ($9.4Bn) but that's an Australian company, so globally second biggest (I guess article was referring to domestic). It has also set a record as the largest energy sector LBO.

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Nov 23, 2011

Yeah, saw that. I was looking here. I don't know anything about the Kelda deal, though.
http://blogs.wsj.com/deals/2011/07/13/rank-em-10-b...

Nov 23, 2011

Who are the other advisors to samson other than Jefferies?

Nov 24, 2011
xyz12345:

Who are the other advisors to samson other than Jefferies?

Bloomberg is just listing Jefferies at the moment (Jones Day was the legal adviser).

Nov 23, 2011

Is it weird to find that Samson CEO quite cute?

Nov 24, 2011

What kind of terms do you guys think KKR offers to investors for co-invest in this transaction. Presumably they'd need to go back to the Fund's LPs and offer them a pro-rata stake in the investment at terms similar to the Fund's terms (i.e. 2 + 20 or whatever)... but my feeling is that in reality the LPs tend to get a lot better terms on the co-investment deals (i.e. 1 + 10 or perhaps no management fee at all and a 15-20% promote)... what have you guys seen in your experience? Maybe KKR is a strong enough player they can actually get 2/20 on coinvest... but I know that mere mortals usually have to give good deals on these investments (as a bonus to loyal LPs who invest in funds hoping for better terms on co-invests, etc.)

Nov 24, 2011
International Pymp:

What kind of terms do you guys think KKR offers to investors for co-invest in this transaction. Presumably they'd need to go back to the Fund's LPs and offer them a pro-rata stake in the investment at terms similar to the Fund's terms (i.e. 2 + 20 or whatever)... but my feeling is that in reality the LPs tend to get a lot better terms on the co-investment deals (i.e. 1 + 10 or perhaps no management fee at all and a 15-20% promote)... what have you guys seen in your experience? Maybe KKR is a strong enough player they can actually get 2/20 on coinvest... but I know that mere mortals usually have to give good deals on these investments (as a bonus to loyal LPs who invest in funds hoping for better terms on co-invests, etc.)

Most co-invests don't pay normal fees, frequently anchor/sponsor investors will pay zero fees and other investors will always pay reduced and frequently will not pay any. The LPA will outline the GPs co-invest policy and most investors will have maximum co-invest terms written into any sideletters.

As a point of reference, of the past 4 co-invests I have done, I have paid no fees at all on three of them and 12% carry on the last (which was highly oversubscribed due to incredibly low valuation).

As to the deal, looks like there is 60% equity which is probably demonstrative of how the buyout industry is going

Nov 24, 2011
samoanboy:

As to the deal, looks like there is 60% equity which is probably demonstrative of how the buyout industry is going

I wonder if that's partially a function of the target's industry rather than the general trend in PE. I don't doubt that you'll see less leverage in general, but 60% is a pretty big equity check compared to some other recent deals, even the mega-deals year-to-date (Kinetic Concepts was <30% I believe).

Nov 24, 2011
Kenny_Powers_CFA:
samoanboy:

As to the deal, looks like there is 60% equity which is probably demonstrative of how the buyout industry is going

I wonder if that's partially a function of the target's industry rather than the general trend in PE. I don't doubt that you'll see less leverage in general, but 60% is a pretty big equity check compared to some other recent deals, even the mega-deals year-to-date (Kinetic Concepts was <30% I believe).

Oh ok, last couple I've seen close up (all MM) have been around 50/50 or 60/40 but interestingly with very weak covenants - which would appear to be counter-intuitive???

Anyway, I'm sure this company will thrive under its new debt mountain and inspirational parentage!!!!

Nov 24, 2011
samoanboy:
Kenny_Powers_CFA:
samoanboy:

As to the deal, looks like there is 60% equity which is probably demonstrative of how the buyout industry is going

I wonder if that's partially a function of the target's industry rather than the general trend in PE. I don't doubt that you'll see less leverage in general, but 60% is a pretty big equity check compared to some other recent deals, even the mega-deals year-to-date (Kinetic Concepts was <30% I believe).

Oh ok, last couple I've seen close up (all MM) have been around 50/50 or 60/40 but interestingly with very weak covenants - which would appear to be counter-intuitive???

Anyway, I'm sure this company will thrive under its new debt mountain and inspirational parentage!!!!

Yeah, you definitely don't see deals like in '07-Kinetic Concepts was a perfect storm in that it had a pretty leverage-able "story" of stable end-markets, good margins, growth opps, etc; already been through the PE ringer once before, and had been a well-known HY issuer even as a public company.

Curious, if you care to share, what sort of lender group you saw in those mid-market deals and whether there was a mezz piece? I think it makes sense that as a sponsor you'd trade a larger equity check for less restrictive covenants and/or forgo mezz for that last turn of leverage in order to cover your downside. This goes even more so for some of the current-generation mid-market deals that are financed "unitranche" by alternative lenders/mid-market credit funds on a solo or club basis. I think traditional mid-market commercial bank lender groups are far more likely to use covenants as a safety blanket than institutional lenders.

I would say that in primary mid-market and mezz deals we're somewhat agnostic towards covenants; obviously we'd rather have them but we'd rather like the credit and have no or wide covenants than be lukewarm and have tight covenants.

Nov 24, 2011
samoanboy][quote=International Pymp:

What kind of terms do you guys think KKR offers to investors for co-invest in this transaction. Presumably they'd need to go back to the Fund's LPs and offer them a pro-rata stake in the investment at terms similar to the Fund's terms (i.e. 2 + 20 or whatever)... but my feeling is that in reality the LPs tend to get a lot better terms on the co-investment deals (i.e. 1 + 10 or perhaps no management fee at all and a 15-20% promote)... what have you guys seen in your experience? Maybe KKR is a strong enough player they can actually get 2/20 on coinvest... but I know that mere mortals usually have to give good deals on these investments (as a bonus to loyal LPs who invest in funds hoping for better terms on co-invests, etc.)

Most co-invests don't pay normal fees, frequently anchor/sponsor investors will pay zero fees and other investors will always pay reduced and frequently will not pay any. The LPA will outline the GPs co-invest policy and most investors will have maximum co-invest terms written into any sideletters.

As a point of reference, of the past 4 co-invests I have done, I have paid no fees at all on three of them and 12% carry on the last (which was highly oversubscribed due to incredibly low valuation).

thanks, that makes a lot of sense. I guess I'll count my lucky stars that we can sometimes get roughly 1 + 10.

Nov 24, 2011

Article on the scope of KKR's energy operations:

"The private equity firm K.K.R. has had extraordinary success investing in so-called shale plays. Starting in 2009, the firm has placed three consecutive bets on the business of extracting natural gas from shale rock formations through hydraulic fracturing technology, or fracking."

http://dealbook.nytimes.com/2011/11/25/k-k-r-s-ene...

Nov 25, 2011

Large equity component is probably limited to the amount of debt that would fit into the borrowing base structure based on the value of the reserves. Can't buy and operate an E&P company with mostly debt like a typical LevFin deal. Also, all of the energy focused PE shops do not lever up their investments in fear of a pull back in commodity prices (esp in the E&P space, since borrowing base is revised semi-annually and tied to commodity price....you could theoretically be forced to repay a large chunk of debt in 6-mos if prices collapsed).

My all time favorite PE deal in the E&P space is Kirk Kerkorian's investment in Delta Petroleum (take a look at the historical chart and look back in the '07 days when he began investing).

Nov 24, 2011
ChemicalBank:

Large equity component is probably limited to the amount of debt that would fit into the borrowing base structure based on the value of the reserves. Can't buy and operate an E&P company with mostly debt like a typical LevFin deal. Also, all of the energy focused PE shops do not lever up their investments in fear of a pull back in commodity prices (esp in the E&P space, since borrowing base is revised semi-annually and tied to commodity price....you could theoretically be forced to repay a large chunk of debt in 6-mos if prices collapsed).

My all time favorite PE deal in the E&P space is Kirk Kerkorian's investment in Delta Petroleum (take a look at the historical chart and look back in the '07 days when he began investing).

Yep, that theory should be applied to all cyclical businesses (not just those exposed directly to commodity markets), but if you look back a few years I think there are plenty of examples of highly leveraged deals in companies with anything but steady earnings!!!

Nov 25, 2011