It is back to school and seemingly peak acquisition time in the infra-space, too, as Energy Capital Partners (ECP), based in New Jersey, is being acquired by London-listed private equity investor Bridgepoint Group (LSE: BPT). Bridgepoint is the owner of PEI Group, the publisher of PE Hub Europe.
The acquisition will result in €57 billion of AUM across the joined-up group. The deal sets an enterprise value of £835 million ($1.05 billion; €974 million) for ECP, with 235 million of newly issued Bridgepoint shares, £233 million of cash, and the inclusion of £179 million of debt.
The addition of ECP to the Bridgepoint Group will constitute a third pillar alongside Bridgepoint’s private equity and credit businesses.
As with CVC’s acquisition of DIF Capital Partners announced Tuesday, ECP will continue to operate under its existing brand and ECP’s senior partner and founder, Doug Kimmelman, will stay in charge. No changes to the management and investment teams are expected.
Furthermore, the ECP leadership will join Bridgepoint’s executive team and ECP’s senior management and many of its employees will become significant shareholders in the joined-up company. ECP partners will hold 19 percent of Bridgepoint’s shares pre-earn out and up to 25 percent assuming full earn-out.
Extending the ownership was a key consideration for Kimmelman.
“There is a lot of solicitation of talent in the energy transition space because there’s a limited amount of talent, so to attract and retain the best was top of mind for considering how to keep our firm strong and growing over the next several decades. Therefore, broadening the ownership throughout our ranks was attractive. Now, 30 percent of our equity will be distributed to our broader team and having the public equity security is going to make a material difference,” says Kimmelman.
ECP was founded in 2005 and has offices in the US and Korea, having raised more than $30 billion for investments. Its focus is on the energy transition and the strategy is value-add. The GP currently has two funds in the market. ECP V flagship fund, launched in late 2021 and targeting $4 billion. This fund currently has commitments of more than $3.8 billion, according to a statement to the LSE Wednesday morning. A debt fund, ECP ForeStar targeting $2.5 billion was launched this summer.
With a robust product suite, Kimmelman confirmed “we were not shopping around”.
What Bridgepoint offers ECP, other than the shift in ownership is an entry to continental Europe following three ECP deals in the UK.
“We grew up in North America, and that is where we know the markets, but Europe is going through some pretty extreme energy challenges and may have more of a desire for the energy transition than some parts of the US. We are ready to look at Europe, but do not have the relationships or the country offices, and we do not know who is credible and who is not. We can use Bridgepoint as a catalyst for a push into the European market,” said Kimmelman.
Earlier this year, ECP formed a joint venture with the Japanese SuMi Trust Bank, as Japan is another region of interest to the GP because of its need to decarbonise.
Limited LP overlap
There is, as per usual, the small matter of getting access to LPs to consider. And that goes both ways.
“Raising money is clearly becoming increasingly competitive. Given there is only a 20 percent overlap of the LP roster of Bridgepoint versus the LP roster of ECP, by coming together we have a huge opportunity to build out our respective relationships faster which is really exciting,” said Kimmelman.
“Investors in private equity and infrastructure funds have spoken and they want fewer GP relationships and more product lines. We want to be one of the relevant firms, and this transaction puts us in a different league; in a year, we will be glad that we were on the front end of the consolidation trend rather than at the back end with limited choices,” he added.
Raoul Hughes, Bridgepoint’s group managing partner and coming CEO agreed. “The investor overlap demonstrates both that there is an appetite within the investor base to invest in both firms but also importantly that there is a lot of white space. Geographically, the current investor bases are quite complementary, so we feel there are synergistic opportunities. We see this as a really good medium-term opportunity.”
At Bridgepoint, the chair and CEO roles will be split with William Jackson continuing in his role as chairman and focusing on core PE business, while Hughes will be the group CEO.
For Hughes, extending Bridgepoint’s reach across the Atlantic is yet another bonus, and he hopes that deals can follow too, as the energy transition space often provides opportunities outside of the infrastructure format: “One of the attractions of this transaction for Bridgepoint, aside from the fact that it is absolutely bang on the strategy outlined on the IPO, is that we see real opportunities for the ECP team to help our equity business which already has a presence in the US market.”
There are also practical considerations in play. “As the industry becomes more professionalised, our investor base looks to reduce the number of managers and the more products you offer, the more you appeal to the investor base. At the same time, there are increasing regulatory requirements which obviously create costs that you want to amortise ultimately over a greater AUM,” said Hughes.
When it comes to strategies, there are two obvious options to consider, according to Hughes: “The bigger the hopper at the top, the more investable opportunities you find, the more deals you will do and the better your returns and the larger funds you can raise. So one of the questions is whether the ECP story in Europe should be a dedicated European fund or whether we can increase investments in the flagship by having an ability to better invest in Europe?”
The transaction is expected to close within four to six months.