Consortium Buys Construction Co. –

A consortium comprised of The Sterling Group, Genstar Capital, Perry Capital, Stephens Group and BNP Paribas Securities recently finalized their purchase of North America Construction Group, paying $310 million for the energy construction services company.

North America Construction, based in Edmonton, Canada, is a provider of construction services to the major oil and gas companies developing the oil sands of Alberta, Canada, an area that has an estimated 175 billion barrels of economically recoverable oil. North America Construction offers a variety of services, including contract mining, site preparation, piling and pipeline installation, and the business reported profits of $65 million for the 12 months ending Sept. 30, on revenue of $308 million.

Jean-Pierre Conte, the chairman and managing director of Genstar Capital, told Buyouts, “We’ve been looking at the energy services sector for 18 months, and the investment in North America Construction provides us with the opportunity to participate in this area. There has been significant investment to date in the Alberta oil-sands projects and we are confident there will continue to be significant expansion and development of these projects.”

And, according to the buyout group, North America’s place atop the food chain in the Alberta construction services market, puts the company in a great position to leverage the expansion of the oil-sands project growth. William Oehmig, a principal of The Sterling Group, noted, “This company is clearly the dominant player in a growing niche-market, where there is huge potential for further growth.”

According to Alberta Economic Development, there was an estimated C$23 billion invested in the Alberta oil sands from 1996 to 2002, and going forward the agency expects investment in the region to grow by approximately C$71 billion over the next 10 years.

“Given that North American provides outsourced services to these projects, we are participating in the growth in investment going into the [area],” Conte added.

The potential of the Alberta oil sands has been widely reported, and the promise of the region’s capacity for oil reserves has been likened to those of Saudi Arabia. However, a shortage of qualified labor has resulted in numerous cost overruns, which has led some companies to tread softly in the region. Petro-Canada, for instance, in the spring put its C$5.8 billion Alberta oil-sands expansion project on hold, and said it would decide by the end of the year whether it would proceed with the initiative. ExxonMobil, meanwhile said it intends to use caution for its C$5 billion to C$8 billion oil sands project.

That said, though, there are profits to be made in the oil sands and Suncor Energy, Canada’s No. 4 oil producer and refiner, recently reported a 60% jump in its third quarter profits, which the company attributed in part to record output at its oil-sands operation. The Alberta Energy and Utilities Board estimates that all of the Alberta oil sands could produce around 2.5 trillion barrels of synthetic crude, although only 175 billion barrels are actually available to be recovered at a cost that is comparable to international oil prices today.

However, with the turmoil in the Middle East, Canada is, by contrast, free from the risks associated with the geopolitical factors involved overseas. “This is a very safe place to extract oil. Operating costs are higher, averaging about $10 a barrel [versus roughly $4 a barrel in the Middle East], but it’s much less risky and the costs per barrel continue to come down,” Conte said.

And North America Construction’s performance is not entirely dependent on the success of Alberta’s oil-sands projects. The company also has exposure to other industries as well, and Oehmig cited the mining of diamonds as one area North America could see expansion. “It is projected that Canada is likely to become the second largest producer of diamonds in the next decade,” he said.

To buy the company, The Sterling Group led the transaction, while Genstar and Perry Capital each contributed with $15 million equity stakes, and Stephens and BNP Paribas followed up with a $10 million stake and a $5 million stake, respectively. Management also contributed to the deal. In financing the transaction, the investor group raised $200 million of high-yield debt and took out a C$50 million senior term loan. The company also secured a C$70 million undrawn revolving credit facility. BNP Paribas and RBC Capital Markets led the debt syndicate.

Snap Shot

Buyers: The Sterling Group, Genstar Capital, Perry Capital, Stephens Group, BNP Paribas Securities and management

Purchase Price: $310M

Debt Providers: BNP Paribas and RBC Capital Markets

Buyers’ Lawyer: Bracewell & Patterson, L.L.P.

Buyers’ Accountant: Deloitte & Touche