HM Capital sells $600m stake in energy firm(2)

Dallas-based HM Capital Partners becomes the latest private equity firm to realize a substantial return on its investment in the energy sector.

GE Financial Services announced today that it has acquired a stake in Regency Energy Partners from Dallas-based private equity firm HM Capital Partners. GE has purchased 91 percent of Regency’s general partner, and 16.7 million subordinated units from HM Capital for $603 million (€450 million).

 

HM Capital and its affiliates will continue to own more than 8 million of the company’s limited partner units, making it the second largest investor in Regency with a 17 percent stake in the company.

 

HM Capital acquired Regency, a master limited partnership that owns natural gas gathering and processing systems in Texas, Louisiana, Oklahoma and Kansas, in December of 2004. It paid $405 million for the company, and subsequently installed James Hunt and Michael Williams as chief executive officer and chief operating officer, respectively. Both men had previously worked in operations and finance in the energy sector. Joe Colonnetta, a partner at HM Capital, was named non-executive chairman of Regency.

 

During the past two years, HM Capital was able to triple Regency’s cash flow by expanding its pipeline capacity.

 

“Pipeline infrastructure has been underinvested for the last 40 years,” Colonnetta said, “So when the last wave of drilling hit, there wasn’t sufficient infrastructure.”

 

He called the GE deal a ’housekeeping seal of approval’, saying that GE’s interest is a tribute to Regency’s newfound strategic relevance.

 

Colonnetta said HM Capital believes Regency still has another phase of growth ahead, which GE can facilitate. Only when Regency’s growth begins to slow will HM Capital sell the rest of its position.

 

Regency is not HM Capital’s first investment in the energy sector. In a series of deals in 1998 and 1999, HM Capital acquired a 38 percent stake in Triton Energy for $350 million, which it then sold to energy company Amerada Hess, earning $866 million on its investment. The private equity firm has also invested in BlackBrush Energy (formerly Kerns Oil & Gas) and Trident NGL. Over the past three years, HM Capital has executed 19 transactions in the energy sector, valued at over $3 billion.

 

The firm was founded in 1989 under the name Hicks, Muse, Tate & Furst. It changed its name to HM Capital Partners in 2006, about a year after frontman Tom Hicks left the firm. HM Capital also invests in the food and media sectors. It is currently managing a $1.6 billion fund.

 

The energy sector has long been a popular destination for private equity capital, and several firms have made highly profitable exits there in recent years. The Blackstone Group has realised a return of six times or higher on its investments in petroleum refiner Premcore, mining outfit Foundation Coal, and power generation company Texas Genco. Earlier this year, Candover, 3i, and JP Morgan Partners generated a return of 3.5 times their initial investment in Vetco International, a supplier to the oil and gas industry, after a partial exit. Many firms, including The Carlyle Group, Riverstone, and Oaktree Capital Management, have raised funds specifically dedicated to the energy sector.