First Reserve Powers New Buy-Build Platform –

With the recent acquisition of C&W Fabricators, First Reserve Corp. has kicked off a new buy-and-build platform in hopes of putting together complementary businesses related to power equipment and services.

While First Reserve has always focused on the energy industry, broadly defined – and more traditionally, oil services businesses – the Greenwich, Conn., and Houston-based firm is moving into power equipment and services because the shortage of electricity that is sure to lead to future demand makes this segment less cyclical than other energy-related areas, said Joe Compofelice, chief executive of the as-of-yet unnamed holding company sponsored by First Reserve to make these acquisitions.

Thus, First Reserve’s holding company purchased C&W Fabricators, a manufacturer of components for the gas turbine generation industry, for approximately $60 million in equity and bridge financing, all provided by First Reserve. A rapid deal close was important to the seller, Meriwether Capital Corp., leading First Reserve to commit to the whole transaction price.

The firm plans to replace the bridge financing with third-party debt in connection with its next acquisition in this segment, said Tom Denison, a First Reserve managing director.

C&W was an attractive investment because of its strong growth over the last five years, as well as its stable earnings and cashflow. Its customer list, which includes General Electric, its high-quality work, the management team and the company’s ability to fit into a larger scheme, also caught the eye of First Reserve.

“C&W has firm orders in hand for three quarters of next year’s revenue targets,” Compofelice said.

Due to the electricity shortage, the U.S. has developed an aggressive plan to build 1,300 gas-fired plants over the next 10 years. There is also an effort to maintain and upgrade older coal-fired plants as a part of the overall plan. First Reserve’s platform of companies hopes to provide equipment to the new plants and services to the older ones.

The firm’s move into this new segment of power equipment and services is a direct result of changes in commodity prices of electricity versus, say, oil and gas.

“There is something to be said for those investments that are closer to a growing demand base,” said Denison. “Changes in commodity prices affect companies close to the source of supply.”

Compofelice and First Reserve plan to fund C&W’s growth and look for other businesses to integrate into it, building a $100 million to $200 million Ebitda company over the next two to four years. Future sizes of investments will be “all over the map,” Compofelice said, although First Reserve’s average investment is $50 million.

At the end of November, First Reserve was in discussions with three companies and had identified three to five more potential targets.

The purchase of C&W marks First Reserve’s second transaction out of its ninth fund, which closed on $1.3 billion in April (Buyouts May. 21, p. 1). Earlier this year, First Reserve teamed with Odyssey Investment Partners to acquire Dresser Equipment Group from Halliburton Co. for $1.55 billion (Buyouts Feb. 19, p. 1).

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