First Reserve Fends Off Suitors For Big LBO

Target: Abbot Group Plc.

Price: $3 billion-plus

Sponsor: First Reserve Corp.

Financial Advisors: Sponsor: UBS, Simmons & Co.; Seller: JPMorgan Cazenove, Rothschild

Energy-focused buyout firm First Reserve Corp. relied on its industry ties to outmaneuver heavy competition for Scotland-based oilfield services company Abbot Group Plc. A $2.1 billion loan agreement from Goldman Sachs didn’t hurt, either.

The management-led buyout, valued at £906 million ($1.8 billion) in equity but some $3.9 billion when lumping in assumed debt, is the fourth-largest announced deal by a U.S.-based firm since Aug. 1, 2007. It’s the largest LBO ever in the drilling-services industry. Abbot Group’s management team will contribute $50 million for a stake of undisclosed size in Turbo Alpha Ltd., the First Reserve affiliate that’s leading the transaction.

First Reserve had to compete with at least two other financial sponsors, U.K.-based Candover and 3i, for the deal. Candover reportedly lost out on price, while disagreements over potential divestitures prompted 3i to pull out of the bidding, according to the Financial Times. Joe Bob Edwards, a First Reserve managing director, said his firm would “absolutely not” consider selling off pieces of the company.

In fact, one of First Reserve’s growth strategies calls for Abbot to expand through add-on acquisitions, said Neil Hartley, a managing director. “That’s our M.O.,” he said. “Management at Abbot has proven they can make acquisitions, and it has been a key part of the company’s growth.”

Edwards added that Abbot’s main subsidiary, KCA Deutag, is particularly well-situated to expand in fast-growing areas such as Russia, the Middle East, North Africa and West Africa.

As a leading investor in the energy sector, First Reserve has had its eye on Abbot for some time and enjoyed a relationship with the management team. The company put itself on the auction block in October, but not because of an approach by First Reserve, Edwards said.

Abbot’s CEO and founder, Alasdair Locke, along with three additional officers, will remain with the company as investors and managers. Locke’s 13 percent stake in Abbot is valued at some $234 million.

The investment comes from First Reserve’s most recent $8 billion fund First Reserve Fund XI, closed in 2006. The firm has been deploying money from the fund at fast clip, including nearly $400 million in equity checks for two deals in December, but has not plans to be back fundraising until 2009, a spokesperson said.—E.G.