One Energy Investor Acquires Another

In the summer of 2016, the buyout firm Riverstone Holdings made an agreement to acquire Talen Energy Corp. Talon Energy is an independent American producer of power became that had become weakened by the cheap costs of natural gas and also by the decrease in demand, eventually agreeing to take $1.8 billion for the acquisition.

Founded by Pierre Lapeyre and David Leuschen, Riverstone Holdings operates on investments in energy solutions. Riverstone Holdings already own 35 percent of Talen Energy, guaranteeing to pay $14 per share in the deal for the portion it doesn’t already own. This cost per share is a 56 percent raise from the closing price on the last trading day before reports of the potential sale, which was $9. It’s also a 17 percent increase from the closing price.

Less than a year before the acquisition, Riverstone assisted in creating Talen through an important merger which involved some of the company’s power plants with utility owner PPL Corp. This merger and Talen creation came at an awful time however, with gas prices sinking to its lowest since 1999. As a result, Talen’s stock fell to as low as $5.73 for the year.

According to an Intelligence analyst, all signs are pointing to private equity having an increasing ownership of merchant power assets in the country. Utility owners that own plants that happen to sell in competitive markets are trying to shed the responsibility.

Shares of the company rose 17 percent at the time of the acquisition, rising 92 percent just during the year after dropping 70 percent in the year before the acquisition, 2015. The decline in shares was attributed to the decline in gas prices, which destroyed electricity prices.

The acquisition of Talen by Riverstone leaves the deal valued at around $5.2 billion, after assuming any associated debt. The transaction between the two was still subject to approval by shareholders and Talen had the opportunity to entertain better offers for 40 days after the initial offering, although no one expected Talen to receive better offers.

Riverstone isn’t the only private equity firm to expand into the power generation in very recent years. Energy Capital Partners LLC formed a partnership with Dynegy Inc. to buy American power plans from Engie SA. Panda Power Funds has been creating new plants in Pennsylvania and Virginia.

While Talen is the smallest of all American publicly traded power producers, it made sense for Riverstone to become part of the buyout. Because Talon experienced larger earning drops for the year than its peers, Riverstone wanted a chance to hang onto any of equity left after the stock value’s loss.

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