Private equity funds are cashing in their chips in the oil patch, with the latest payday coming in the $503-million sale of CanEra Resources to publicly-traded Legacy Oil Plus Gas.
This takeover should be viewed as part of a larger trend that is seeing the likes of Warburg Pincus back an IPO at MEG Energy, and pension fund AIMCo creating a public company called Chinook Energy out of its private oil and gas holdings. There is now an enormous amount of private capital chasing oil and gas investments, and those investors eventually need to exit their holdings.
CanEra was founded in 2008, and quickly built a substantial holding of oil and gas properties in southwestern Alberta. The company is run by veterans of Canetic Resources Trust, which was itself taken out by Penn West. (Welcome to the circle of life, Calgary style.)
While CanEra is private, filings show the company raised $387-million in 2008 by tapping two energy-focused U.S. private equity funds: Natural Gas Partners, a $7.3-billion (U.S.) fund based in Texas, and Riverstone Holdings, a $16-billion fund run out of New York.
On Wedneday, CanEra managements and those funds cashed in by selling the company for $241-million in cash and 20.5 million Legacy common shares. Back-of-an-envelope calculations show that's a 30-per-cent return, over 18 months. This kind of performance explains the strong interest the private equity crowd is showing in energy investments.
To fund the takeover, Legacy did a $236-million bought deal equity financing on Wednesday that was led by GMP Securities and Macquarie Capital Markets.
On the acquisition, Legacy looked to Macquarie and GMP Securities as financial advisers, plus National Bank Financial as a "strategic adviser."
Across the table, CanEra tapped a trio of advisors, with TD Securities, FirstEnergy Capital and BMO Nesbitt Burns all getting credit for their assistance. There's an oil patch tradition of sharing the love after a deal by giving credit to all investment banks that have backed a company over the years.