NEW YORK (Reuters) - Consistently high energy prices and a wave of consolidation has made it tough to find appealing deals within the energy industry, Prakash Melwani, senior managing director at The Blackstone Group, said on Wednesday.
"We're finding it harder now to find attractive (energy) deals," Melwani said, speaking at the Reuters Hedge Fund and Private Equity Summit. "It was a great time to buy energy companies when oil prices were $25 a barrel. By definition, it's a harder time to do energy deals."
Melwani also offered an update on the firm's plans for investing in India.
Soaring natural gas and U.S. crude oil prices in the last three years drove a round of energy company consolidation. But the continued spike in energy prices has pushed up valuations of both oil and gas companies and utilities, making them less attractive to private equity firms, which are warier of paying high prices for deals than corporate buyers.
Last October, NRG Energy Inc. (NRG.N: Quote, Profile, Research, Stock Buzz) agreed to buy Texas Genco Holdings Inc. from private equity investors for $5.8 billion. Private equity firms Texas Pacific Group, Kohlberg Kravis Roberts & Co., Blackstone Group and Hellman & Friedman made more than five times their initial investment from the deal, having owned the company for barely a year.
Melwani was one of the Blackstone directors involved in the Texas Genco investment.
"In that deal, there were three or four elements that were able to drive profitability," Melwani said, natural gas prices and power demand among them.
The consortium also took out much of the commodity risk by hedging the volatility of fuel prices.
"When we did Texas Genco, 'power' was a dirty word," Melwani said, referring to the post-Enron era. "Frankly, when any sector is under a cloud, it's a great time to get into it." Continued...
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