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Buyout firms triple their money with €1.5bn Vetco exit

Candover, 3i and JP Morgan Partners cash in on energy boom with €1.5bn sale of oil and gas services company to General Electric.

A consortium of three private equity firms has more than tripled their initial investment with a partial exit from Vetco International, a supplier to the oil and gas industry. The deal provides further evidence of the booming energy sector.

Candover, 3i and JP Morgan Partners will make 3.5 times their initial investment after selling Vetco Gray, a equipment provider, for €1.5 billion ($1.95 billion) to US conglomerate General Electric.

The three firms originally bought the company for €729 million in January 2004 from ABB, a Swiss-based engineering group, in a deal which included €331 million of equity. It has since refinanced the company on two occasions, in March and December 2005.

The consortium brought in Peter Goode from Schlumberger to lead a new management team, and focused on improving sales and pricing. The division was able to increase turnover to an estimated $1.6 billion (€1.2 billion) in 2006, as it benefited from an increase in exploration and production work driven by the rising oil and gas prices in recent years.

Marek Gumienny, managing director of Candover, said the consortium had considered a number of exit options, including a flotation of the whole group, but the cash offer from GE proved to be the most attractive. He said GE was an obvious bidder for the Gray division, having looked at buying the business in 2004.

The buyout firms will retain Vetco Aibel, which builds and maintains drilling facilities and had predicted sales of $1.4 billion in 2006. It plans to float this business in the second half of 2007.

Gumienny was bullish about the prospects for the sector. “The market’s still got a long way to come. Geopolitical developments can only have a favourable impact on the oil price,” he said.

The deal represents another substantial exit in the sector for 3i, who made a 5 times return after a £550 million flotation of oil services group Petrofac in 2005, and a 7.3 times return from the £153 million sale of North Sea gas business CH4 Energy to energy group Venture Production in 2006.