Hvidtsted & Partners

LBO in progress

We are seeking investment partners for the acquisition of a Western publicly traded energy company with undervalued assets co-owned by several blue-chip companies.

Conservative estimate of IRR at Maximum Bid Price above 30% at current oil prices, with considerable upside if energy prices go up, and we believe they will. This could result in an IRR above 45% in a bull scenario.

  • Expected Maximum Bid Price: USD 1.2 billion to take the company private.
  • Recurring Annual Free Cash Flow: USD 200 million, expected to rise to USD 300 million in 2026 and USD 500 million in 2029
  • Net Debt: Limited
  • Estimated Return: Over 30% IRR based on current cash flows, asset development, and oil prices at current levels. Further upside if expectations of higher energy prices materialize.
  • Transaction Structure: Leveraged buyout financed with the company’s cash flow. 70% debt financing, subject to final financing conditions.
  • Next Steps: Signing an NDA for exclusivity and confidentiality agreement, to learn the specifics of the company.

Case

Sector Outlook

The energy company operates within the oil and gas industry. Despite the green energy transition, demand for oil and gas is still increasing. Green alternatives are technically not able to cover all energy needs, and we experience their competitiveness issues today just on the back of normalizing interest rates. Limiting investment mandates in fossil fuels as a category has led to increased reliance on higher-polluting energy sources like coal, where natural gas could be a greener transitional choice, meaning an informed investment policy on fossil fuels during the green transition should encourage this investment.

Key market participants expect oil prices to rise due to global inflation forecasts, on the back of current monetary, fiscal, and national defense policies already in motion. Further, supply/demand development supports higher energy prices as new capacity has been limited due to ‘green only’ investment mandates, and existing production and export capacity, primarily in Russia, has been heavily affected by the war in Ukraine. Europe is still fuelling the Russian war machine as its oil is being ‘laundered’ through India. If we do not want to buy Russian oil and gas, we must invest in alternatives.

Business Description

The company has significant assets in several stable African countries, co-owned with internationally recognized names. These assets provide a strong market position with growth potential and positive cash flows even at low energy prices due to its low operational costs. The company has limited net debt, further strengthening its financial robustness. It has strong management in place with a good track record and a strategy in place to realize its value. Most of its assets are co-owned with internationally recognized names. Currently, the company has above 70% free float, with the biggest shareholders open to selling at the right price, their ownership also displaying a clear stamp of approval.

Financial Summary

  • Expected Maximum Bid Price: USD 1.2 billion to take the company private
  • Recurring Annual Free Cash Flow: USD 200 million, expected to rise to USD 300 million in 2026 and USD 500 million in 2029
  • Net Debt: Limited
  • Estimated Return: Over 30% IRR based on current cash flows, asset development, and oil prices at current levels. Further upside if expectations of higher energy prices materialize.

Investment Rationale

  • Market Opportunity: Stable and growing market with significant expected increases in oil prices due to global macroeconomic factors.
  • Strong Financials: Limited net debt and increasing free cash flows.
  • Experienced Management: Experienced management with a clear strategic vision, reducing the need for active investor intervention.
  • Growth Potential: Development of existing assets at short paybacks and high IRRs makes this company a cash cow. Potential for significant increases in oil prices, offering further upside on returns.

Current Partners:

  • M&A Legal Advisory: Undisclosed.
  • Investment Bank (debt): International Major
  • Equity Investors: TBA

Next Steps

We wish to present the case to you in detail to facilitate a possible collaboration. To proceed, we wish to enter into an exclusivity and confidentiality agreement to ensure that all information is shared in a confidential environment and that the target company’s price is not negatively affected.

We look forward to exploring this exceptional investment opportunity together.