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What are the Different Types of Energy Private Equity?

Energy private equity encompasses diverse investment avenues, from traditional oil and gas to renewable resources like wind and solar. It also includes ventures in emerging technologies such as battery storage and smart grid systems. Each type offers unique risks and rewards, aligning with varied investor goals. What type resonates with your investment philosophy? Join us to uncover the potential within each category.
Geri Terzo
Geri Terzo

There are thousands of private equity firms, and many of them are dedicated to energy private equity. Among the ones focused on energy, some look quite broadly on the entire industry, and others are dedicated to a subset within this category. Common areas of energy private equity are oil and gas, transportation or pipeline assets that transport energy resources and alternative energy, such as wind power or solar energy. Some of these investment firms might be focused on the largest of energy assets, and other firms will target small or mid-sized energy companies.

An energy private equity firm will comprise what's known as a portfolio of equity assets. This equity ownership might include entire companies or partial stakes in an entity. Energy private equity could include the acquisition of distressed assets, which could mean there was a bankruptcy or another failure tied to the energy assets, such as a nonworking oil rig, that deems these assets a risky investment. Sometimes the private equity firm will complete the transaction on its own, or it might partner with another investment firm to make the purchase.

Wind power is a common area of energy private equity.
Wind power is a common area of energy private equity.

It is called private equity because after it is under the control of one of these investment firms, shares of the acquisition target no longer trade in the public markets if they once did. This does not mean that the company will never issue shares or sell stock in the public markets again, but it will not while it is under the ownership of the private equity firm. The typical holding period for a private equity firm is five to seven years, followed by the subsequent sale of the assets back to the management team, the public markets or another owner.

In energy private equity, it often is important that the investment management team has expertise in the energy industry. Overseeing energy assets, such as oil and gas pipelines or wind power farms, can be complex endeavors. In order to preserve and grow the value of these assets, the private equity owners usually are engaged in the ongoing operation of the business.

In energy private equity, just as in private equity as a whole, the investment firm might choose to purchase an entire energy company that was trading its equity publicly in the stock market. The deal becomes what's known as a leveraged buyout (LBO) if the private equity firm uses debt to make the purchase. This means that the private equity firm borrows capital in order to complete the acquisition and might borrow the money from another financial institution or might issue bonds to the public in the debt capital markets. Assets from the acquisition target, such as oil and gas drilling wells, equipment or pipelines, could be used as collateral in the borrowing transaction.

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    • Wind power is a common area of energy private equity.
      By: sanderstock
      Wind power is a common area of energy private equity.