We have access to colleagues who also spend their time thinking about the energy industry–research analysts, investment bankers, commodities traders and financial advisors in energy hub cities. Collectively, they extend our network well beyond the range of a typical middle-market private equity fund.
Q&A with John
I’ve been involved in private equity in the energy industry since 1998 and I’ve loved it. There’s never a dull moment in energy!
It’s about as dynamic as any job you could possibly have. I can be talking to an entrepreneur in West Texas one day, and then talking to an energy minister of an oil producing country the next. Energy is a vital industry that everyone has an interest in.
We are investors in North American middle-market energy companies that are engaged anywhere along the energy value chain. The majority is oil and gas, but we also invest in renewables and other segments of the broader energy complex.
Basically, we are looking for profit growth potential in situations where a company or its specific industry is undergoing change.
Usually, we are not looking at broken or financially distressed situations, but we look for situations where there is opportunity to improve operating performance. Typically, the companies we invest in are undermanaged or undercapitalized and sometimes they are high growth.
That means we can invest in an entrepreneurial company that’s poised for growth and needs capital to reach the next stage or in an under-performing subsidiary—a corporate orphan—of a larger public company that no longer considers it core.
We think of ourselves as a problem-solving business for companies that are under-performers or for companies that show promise but need capital to reach their full potential. Our prime objective is not so much to extract value from a company through financial engineering, but to create fundamental, operating value over a three- to five-year time frame.
We generally buy a majority, controlling interest. But when we are working with entrepreneurs, we look to give them the opportunity to own a sizeable minority stake and continue to operate. We control the board, but they are the operators. Everything we do is in conjunction with the management team. This is a fundamental investment tenet for us.
We will invest a lot in establishing the business infrastructure, and we bring the resources of Morgan Stanley to bear. There are also certain accounting, governance and risk management systems that need to be in place in order for us to invest.
In the corporate orphan situation we will seek to draw operational insights from our stable of top executives, many of whom we have done business with in the past or come to us from our network of personal, business or Morgan Stanley relationships. They will look at the situation with us and assess whether the company has growth potential if it’s given capital. Often these executives continue on with management roles in the companies in which we invest.
We seek to improve the operations of these companies immediately with capital invested to remove bottlenecks in operations, or acquire new value-added assets which make these companies more competitive, and ultimately, more profitable. We have an incredible network of executives. We consider them the lifeblood of our business, because they can provide a company with valuable insights.
Morgan Stanley has a global network of people devoted to the energy business in all parts of the world. We have a vast network of relationships within the energy and financial services industries—Morgan Stanley’s energy bankers, industry analysts and a large commodities trading business. We also have many financial advisors working in energy hub cities who are very plugged-in to their local energy scene. If we own a company, then we and they can seek to draw on all of these resources from new deal sourcing and investment evaluation to ultimate exit.
Another differentiating factor is the insight and information that we believe the Morgan Stanley platform gives us. The companies we work with are typically private, and there’s little information on them. We have what we consider to be some of the best energy professionals in the world working at Morgan Stanley, who can add to our own internal expertise. Our business is only as good as our insights on how to value and add value to companies, and we literally have hundreds of people with expertise of some kind who may add to our own insights.
And we believe just having the brand name "Morgan Stanley" provides a halo effect. The firm has what we consider an impeccable record built over many decades.
Strategies
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| Makes privately negotiated equity and equity-related investments in energy businesses located primarily in North America. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||