Charlesbank undertook a search in 2001 for a management team with whom to acquire assets in the troubled midstream energy sector following the collapse of the major energy-trading firms. In 2002, we partnered with seasoned executive David Biegler and together approached El Paso to purchase several gas gathering, processing and intrastate pipeline assets. El Paso was highly motivated to complete a transaction to delever its balance sheet. Our understanding of the industry and proactive approach to El Paso, along with the challenging timeframe imposed by the company’s financial condition, allowed us to buy the assets at an attractive price.
Charlesbank structured all aspects of the transaction and conducted a thorough due diligence process, including a bottom-up build-up of the income statement necessitated by the lack of audited financials. In early 2003, we purchased the El Paso assets, forming a new company, Regency Gas Services, to be run by our management partners.
Carve-out: Worked actively with management to carve out attractive assets from the seller, evaluate acquisition opportunities and establish strategic direction
Operational improvements: Recognized opportunity to improve existing operations and materially increase cash flow through selective capital investment. Completed pipeline expansion projects, outsourced processing in one geography and established an aggressive program to secure more gas volumes
Geographic expansion: Identified logical add-on acquisitions of contiguous assets in North Louisiana and West Texas
Regency’s financial performance improved during the first year, largely by renegotiation of contracts that were below market and by aggressively contracting with producers to hook up newly drilled wells near our asset base. With extensive involvement from Charlesbank and a significant incremental investment, the company completed two add-on acquisitions in 2004, which resulted in a doubling of pro forma EBITDA. In late 2004, we sold Regency to a financial sponsor.