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Energy Firm Eyes Fund III

Energy-focused buyout firm Tenaska Capital Management LLC is preparing to raise its third fund and is likely to launch the process later this year, two sources told Buyouts.

The firm has held informal discussions with placement agents but has not yet hired one. Fundraising groups from Greenhill & Co. and Lehman Bros. helped the firm raise its previous fund, according to Buyouts archives. That fund closed with $2.5 billion in commitments in late 2008.

Tenaska Capital has not decided how much it will seek for the latest fund, Tenaska Power Fund III LP, though one of the sources said Tenaska would likely seek to raise $1.5 billion to $2 billion.

Jana Martin, a spokeswoman for Tenaska Capital, declined to comment.

Formed in 2002, Tenaska Capital manages approximately $4 billion in assets in the power and energy sectors. Its portfolio includes Big Sandy Peaker, a Kenova, W.Va.-based natural gas-powered electricity generating plant, and Voyager Midstream, a Houston-based developer of natural gas storage facilities.

Past investors in Tenaska funds have included the Denver Public Schools Retirement System, Mutual of Omaha Insurance and the New Jersey State Investment Council, according to the Dow Jones Directory of Alternative Investment Programs.

Tenaska Capital is hardly alone in seeking investors for an energy focused fund. ACON Investments has so far raised $400 million for its third fund, which targets energy and energy services-related companies, as Buyouts recently reported. And Lime Rock Partners has reportedly raised about half of the $1.4 billion in commitments it is targeting for its sixth fund.

Over the last two years, buyout firms have ramped up their investments in the energy and power sectors, particularly in oil and natural gas markets that are benefiting from advances in drilling technology and relatively high commodity prices. Most recently, Apollo Global Management LLC and Riverstone Holdings LLC are reportedly bidding El Paso Corp’s exploration division in a deal that could be valued at $7 billion.

Energy and power is a frontier of sorts for buyout shops, when considering the types of deals they’re executing. From Oct. 1, 2009, through Sept. 30, 2011, U.S.-based sponsors closed at least 95 control-stake deals in the sector with a disclosed deal value of $8.2 billion, according to Thomson Reuters, publisher of Buyouts. About 61 percent of those deals could be characterized as new, or platform acquisitions; by contrast, only around 13 percent of all control-stake acquisitions in 2010 could be called platforms.

Within energy, oil and gas was the most popular sector over the last two years, with 39 deals with a disclosed deal value of $4 billion. The power sector came next, with 17 deals and a disclosed deal value of $2.9 billion. Alternative energy sources was third, with 14 deals and $816 million in disclosed deal values.

By Bernard Vaughan

Snapshot

Firm: Tenaska Capital Management

Fund: Tenaska Capital Partners III LP

Target: TBD

Placement Agent: TBD