Chuck Watson founded Houston-based Eagle Energy Partners, a gas- and power-marketing company, in 2003 with personal funds and access to credit from BNP Paribas. A founder of Dynegy Inc., Watson had not used private equity in his 20 years in the energy business. Earlier this year, he took in a private-equity placement by Lehman Brothers in his new venture. "Every step of the way, we compared private equity to public equity," Watson said at a recent private capital conference sponsored by the IPAA. "There are some things you have to expect from private-equity [providers]. They often want a large stake and amount of influence. In terms of what you get in return, private equity-holders often bring strong management experience to the project, deep pockets seeking large returns, and a complete financing solution to maximize growth and value." Lehman is buying a third of Eagle via the private-equity transaction. A partner in Eagle is Chesapeake Energy Corp. Dan Weingeist, managing director of private-capital provider Kayne Anderson Capital Advisors, said, "There is definitely a significant amount of new capital that has been committed to seasoned and new funds. Approximately $8.5 billion has been raised in the last two years by energy private-equity funds." Traditional private-equity players have branched out into raising complementary, non-equity funds, he added. "During the last two years, private-equity-backed companies have accounted for approximately 15% and 30% of E&P buyside and sellside transactions, respectively," Weingeist said. "Also, private-equity-backed companies have become increasingly prevalent in the M&A marketplace and are one of the main reasons proved-developed-producing percentages-as a percent of total reserves in sellside transactions-have decreased dramatically. "The private-equity energy capital markets have a build-to-sell mentality that recognizes public E&P companies' need to acquire upside and are willing to pay for it."
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