Target: Industrial Power Generating Corp.
Buyer: First Reserve Corp.
Seller: INGENCO Management
Financial Advisor: Ferris, Baker Watts Inc.
Legal Counsel: Buyer: Gibson, Dunn & Crutcher LLP;
Seller: McGuireWoods LLP
Accountant: Buyer: KPMG
Landfills are hosts to far more than just waste. Countless microorganisms make the garbage heaps their homes, feeding on and breaking down the discarded organic rubbish. A major byproduct of this feeding frenzy is what the industry calls “landfill gas” (LFG), which is made up of about 50% methane and 50% carbon dioxide and other gasses.
The methane component of LFG is of particular concern to numerous parties for different reasons. For the operators of the landfills themselves, the methane is an issue because it is highly flammable and hazardous to the environment. For years now landfill operators have been mandated by federal law to collect and control the gas before large amounts of it can either build up or escape. Oftentimes, the operators choose to dispose of it through a process called flaring, in which it is simply burned off.
But to companies like Richmond, Va.-based INGENCO, the methane generated from landfills represents an inexpensive, relatively untapped source of renewable energy—which is precisely what attracted First Reserve.
“We like companies with an angle; and this is a low-cost provider of energy from renewable sources, so we figured it was right up our alley,” said First Reserve Vice President Glenn Payne.
Payne confirmed that the value of the transaction is less than $200 million, but declined to elaborate any further. The selling party included INGENCO President & CEO Chuck Packard and other members of the senior management, all of whom will own the remaining 10% of the company not acquired by First Reserve. The auction process was run by boutique Washington, D.C.-based investment bank Ferris, Baker Watts Inc.
INGENCO currently has five landfill gas-fired energy generating facilities with a total of 76 megawatts of capacity. The power from these plants is sold to wholesalers in Maryland, New Jersey and Pennsylvania, eventually making its way to the individual consumer. “We’re essentially recycling their waste back to them in the form of electrons,” Payne said.
Independent of the First Reserve transaction, INGENCO has entered into agreements to develop five additional LFG projects in the next year with capacity totaling 38 megawatts. To date, there are about 375 LFG facilities throughout U.S., Payne said.
In today’s throw-away society, expansion for a company like this is not an issue. “Nationwide, there are some 600 landfills that don’t have, but could use, LFG technologies,” Payne said, adding that First Reserve will seek geographic expansion for INGENCO “wherever the opportunities arise.” However, some electricity markets—like California and much of the East Coast, where strong demand is tightening the market—are more attractive than others, he said.
Pending FERC approval, the deal is scheduled to close sometime in April. Equity for the investment will come from First Reserve Fund X LP, which raised about $2.3 billion in 2003. INGENCO will represent the firm’s first investment in the LFG sector.