NGP sells stake to Carlyle

The energy-focused firm, led by Ken Hersh, has sold a minority stake to help build a ‘sustainable’ franchise model to ensure the future stability of NGP.

The Carlyle Group has paid $424 million to buy a minority stake in long-time energy investment specialist Natural Gas Partners – a deal that will help NGP build a “sustainable and long-lasting … franchise”, according to Ken Hersh, chairman and chief executive officer of NGP.

Carlyle acquired a 40 percent stake in the firm held by Barclays Natural Resource Investments, and 7.5 percent of the firm from NGP management, according to a statement. The $424 million Carlyle paid is made up of cash and Carlyle partnership units. NGP did not need approval from limited partners for the sale.

The deal also includes the right for Carlyle to buy an incremental 7.5 percent revenue interest, which would take the publicly traded firm’s stake to 55 percent. Also, Carlyle gets 7.5 percent share of carried interest in all future funds, and the option to acquire Barclays’ 40 percent interest in carry from NGP’s current flagship vehicle, NGP Natural Resources X, which closed on $3.5 billion earlier this year, as well as all future funds.

As a firm that has been around for 24 years, I am interested in creating the model for a sustainable and lasting private equity franchise.

Ken Hersh

For Carlyle, the transaction helps strengthen the firm’s global natural resources platform. “NGP’s investing excellence in the US oil and gas, midstream and oilfield services sector, coupled with our established capabilities in commodities, power generation, mezzanine financing and most recently, refineries, allows us to take full advantage of the energy revolution sweeping America,” Bill Conway, Carlyle’s co-CEO and chief investment officer, said in a statement.

The firm has been expanding into various business lines, including building up its assets under management through acquisitions. Earlier this year, the firm bought the $130 billion asset manager The TCW Group.

For NGP, the deal represents the opportunity to create a sustainable model for the future, Hersh told Private Equity International in an email.

“As a firm that has been around for 24 years, I am interested in creating the model for a sustainable and lasting

Ken Hersh

private equity franchise,” Hersh said. “We have had two professionals, at the post-MBA level, leave the firm in 24 years and I want that philosophy to continue. This transaction furthers that goal.”

The proceeds from Carlyle’s investment, both cash and Carlyle partnership units, have been distributed “broadly” throughout the firm with “very long vesting periods as well as further performance milestone earn-out concepts”, Hersh said.

“The top management of the firm is taking a minority of the consideration and leaving it to benefit our long-term retention goals for the next generation,” he said.

NGP closed its Fund X in July, collecting $3.58 billion and launching a new strategy around the way a growing population adapts to limited resources. NGP Global Adaptation Partners platform, which focuses on water resources and services and agriculture, accounts for 10 percent of the capital in Fund X.