Kline Hill, Goldman, Morgan Stanley back GEC’s energy secondary

Houston-based energy investor GEC (Global Energy Capital) is moving its portfolio company Estis out of an older fund and into a continuation pool for more time to run the business, sources told Buyouts.

The GEC deal was relatively under the radar and focused on a sector, energy, that hasn’t received much secondaries attention in recent years. Infrastructure and real assets accounted for around 9 percent of estimated total volume in the first half, according to Greenhill & Co’s latest volume survey.

Kline Hill Partners was lead investor on the process, followed by Goldman and Morgan Stanley, sources said. The deal, which was oversubscribed, was expected to raise around $215 million, sources said. UBS worked as adviser on the transaction. Spokespeople for the firms either declined comment or did not respond to comment requests Monday.

Investors in GEC Capital III had the option to cash out of their interests in the asset, or roll their stakes into a continuation fund. All Fund III LPs chose to roll into the continuation vehicle, a source said. The only sellers were outside co-investors, the source said.

Pricing came at a discount to net asset value as of the reference date, sources said, though it’s not clear how deep of a discount.

GEC acquired Estis alongside Genesis Park and Cohesive Capital in 2019. The company makes and rents compression equipment to extract oil from wells using newer technology that reduces timing on the process.

Kilgore, Texas-based Estis, with 273 employees, is a pioneer in the use of High Pressure Gas Lift (HPGL), a disruptive artificial lift technology. Since GEC’s acquisition, the company has grown Ebitda by 5x as HPGL is adopted, replacing older technology.

GEC was formed in 2008 to invest growth capital in industrial products and services for the global energy industry, including alternative energy production, according to GEC’s Form ADV. The sole principal owner of the management company is CEO Jonathan Fairbanks, the ADV said.

As of December 31, the firm managed about $766 million, the ADV said. “GEC’s portfolio companies and services are all underpinned by the common theme of disruptive innovation,” the document said. GEC’s typical deal size is in the range of $5 million and $60 million, the ADV said.

Fund III, a 2015 vintage, closed on $174 million, a source said. The firm also raised $50 million for a bridge fund around the pandemic time frame, and is planning to hit the market with Fund V, likely later this year, the source said.

GP-led deals represented about 35 percent of the estimated $50 billion of total secondaries volume in the first half, according to PJT Park Hill’s first-half volume survey.

Sources have said the market contains robust, “pent-up” demand among GPs to run processes on choice assets. But activity remains somewhat muted due to pricing expectations. This is the same dynamic that is keeping the regular M&A market slow.

Still, activity has remained steady in the mid-market, with a handful of processes finding their way to close. One such deal that has gotten a lot of attention is being run by New Mountain Capital, which is working to move its asset Datavant into a continuation fund, Buyouts recently reported.