Target: EP Energy Corp
Value: Potentially more than $8 billion
Sponsor: Apollo Global Management LLC
Private equity firms buy companies and typically hold them for a period of three to five years before they try to sell them at a profit. An IPO filing so soon after the buyout signifies Apollo’s desire to quickly monetize EP Energy’s value. It also highlights the appetite of investors for companies in the sector, with vast reserves of natural gas and oil unlocked from underground shale deposits driving an energy renaissance in the United States.
Reuters reported in June that Apollo was working with investment banks to prepare EP Energy for an IPO that could value it at more than $8 billion.
An Apollo-led group, which includes Riverstone Holdings LLC, Access Industries Inc and Korea National Oil Corp, completed the $7.15 billion acquisition of EP Energy—originally the exploration and production arm of El Paso Corp—in May 2012. That deal helped finance Kinder Morgan Inc’s $21.1 billion acquisition of El Paso Corp.
Earlier this year, EP Energy struck deals to sell off some of its natural gas and coal bed methane properties for $1.3 billion. The company said it would use the proceeds to pay down some of its debt and increase its capital expenditure. In July EP Energy also agreed to sell its Brazil operations, and in August it paid its owners a $200 million dividend.
The asset sales have made EP Energy a more oil-focused company, with assets in Texas’ Eagle Ford and Wolfcamp shales, as well as Utah’s Uinta basin. It also held onto its highest return natural gas asset in the Haynesville shale. EP Energy said last month its oil production in the second quarter of 2013 was up 59 percent from a year ago and that it was hoping for higher profit margins following the asset sales.
To be sure, an IPO of EP Energy this year does not necessarily mean a quick flip of the company. The speed of private equity’s cashing out depends on the state of the company itself as well as market conditions.
Car rental company Hertz Global Holdings, for example, was taken public by The Carlyle Group LP, Clayton Dubilier & Rice LLC and Merrill Lynch Private Equity for $15 billion 11 months after they bought it in December 2005. It wasn’t until last May that the buyout firms sold their remaining shares in Hertz, making 2.6x their investors’ money.
The $316 million IPO of another Apollo-backed oil and gas company—Athlon Energy Inc—was received warmly by stock market investors in August. Athlon shares rose as much as 34 percent on their first day of trading and are up 38 percent since the IPO.
EP Energy filed to raise up to $100 million in an IPO. The amount of money a company says it plans to raise in its first IPO filing is a placeholder used to calculate registration fees. The final size of the IPO could be different. EP Energy’s filing with the U.S. Securities and Exchange Commission did not reveal how many shares the company planned to sell or their expected price.
The company plans to list its common stock on the New York Stock Exchange under the symbol “EPE”.
Greg Roumeliotis is a correspondent for Reuters in New York. Additional reporting by Aman Shah.