Pine Brook Road nets 3x in debut exit

The Howard Newman-led firm is selling its oil and gas exploration company Common Resources for $805m.

Pine Brook Road Partners has sold its portfolio company, oil and gas exploration company Common Resources, for $805 million, netting a return multiple of three times invested capital.

The exit is Pine Brook’s first from its debut $1.43 billion fund, which closed last year. The firm created Common Resources in 2007, backing an executive the firm’s principals had worked with in the past, Roger Jarvis.

Common Resources, which was formed to use a process called “fracking”, or extracting natural gas from shale, is being sold in two pieces. EXCO Resources and BG Group are buying a portion of the company’s assets for $446 million. Talisman Energy will acquire another portion of Common Resources’ assets for $359 million.

Howard
Newman

Pine Brook made the initial investment in Common Resources with EnCap Investments and Soros Fund Management.

Howard Newman, president and chief executive officer of Pine Brook, said the firm will look to partner with EnCap in the future to back Jarvis “in forming Common Resources II”. Newman formed Pine Brook – along with several co-founders – after spending 22 years at Warburg Pincus.

Part of the success of the Common Resources investment was Pine Brook's decision to invest “when other people are running away from the field”, according to Mike McMahon, a principal at the firm. The investment overcame challenges, including the global financial meltdown and a decline of around 50 percent in the price of natural gas, McMahon said.

“We don't get panicked when the commodity price falls. The key to our investment strategy is not getting commodity price timing correct, it's finding good teams that can find hydrocarbons in significant volumes at low cost,” McMahon said.

Pine Brook’s investment strategy differs from traditional buyouts in that the firm actually helps create companies from the ground up around pre-identified management teams. The firm typically invests between $100 million to $200 million and uses little or no leverage. The firm refers to this as providing a “line of equity” to entrepreneurs.

PEI sat down with several principals from Pine Brook in March to talk about the firm and its future. At the time, Newman said: “We’re in the private equity business; we think that’s about putting equity into a business. We think about the potential that can be created by the business seeds we’re planting, whereas in a buyout you tend to look at an existing business and figure out what the durability is of that business.”

The full magazine article can be accessed (PEI subscribers only) here.