American Oil and Gas Reporter - July 2016 - 42

SpecialReport: Private Equity Strategies
Colley acknowledges that finding compelling investments can be hard. "In many
sectors, such as pressure pumping, there
is significant excess capacity that needs to
be worked down," he says. "The industry
also continues to see meaningful productivity gains, so we may not need as much
hardware as we did in the past for the same
volume of work. In the extremely competitive environment this situation creates,
only the service companies that can build
on those productivity gains will succeed."
Colley encourages startups and established firms in need of capital to consider private equity as a funding source.
"Good private equity providers will bring
far more than money," he says. "They have
transaction and financial expertise, as
well as industry relationships that can help
the management team track industry
trends, and connect with potential customers or partners."
Colley says investors look for companies with a sustainable competitive edge
in a growing market segment capable of
providing attractive returns. "The management team is critical," he stresses. "The
members need to have personal integrity
and a strong reputation.
"Their leadership and experience also
matter," Colley continues. "If they only
have experience managing smaller companies, it is hard to be confident they will
be able to scale a company as it grows.

With that in mind, I look for teams that
have worked for larger businesses in the
sector they want me to invest in."
Management teams should pick their
investors carefully, Colley says. "Make
sure the investors have researched or
worked in the market segment the company focuses on," he suggests. "If they understand the segment's market dynamics,
they will be much easier to work with.
"It also is important to ask about the investors' risk tolerance," he adds. "The team
needs to know how their backers will respond if market conditions force the company to get off 75 percent of the business
plan."
Finally, Colley recommends the management team and its investors ensure they
understand and agree with each other's expectations for how the company will be run
and what it needs to achieve. "Managers
who find backers that share their vision for
how the company should grow will benefit from working with someone who
has a genuine interest in seeing them succeed," he concludes.
Oil Field Service Specialist
Since its formation in 2006, private equity firm Intervale Capital has invested exclusively in the oil field service and manufacturing space. "That allows us to focus
on technological trends and well efficiency," says Patrick Connelly, one of the firm's

Using capital provided by its private equity backer, Thigpen Energy purchased the equipment
needed to make field gas suitable for powering drilling rigs
and pressure pumps, which the
company says reduces fuel
costs significantly.

42 THE AMERICAN OIL & GAS REPORTER

partners. "We try to help companies that
are coming up with new technologies,
business models and best practices that improve producers' economics.
"Many of the technological changes we
support are incremental improvements
that come from field experience rather than
a laboratory," he says. "We tend to partner with small service companies that have
such intimate customer contact they notice problems quickly and get the feedback
necessary to solve them through trial and
error. Our goal is to fuel that fire with capital and advice on how to take those solutions to scale."
Connelly says good private equity
firms enable entrepreneurs to use their
strongest talents. "We add value in the areas where they need help so they can spend
the majority of their time on what they are
good at," he clarifies. "Sometimes that requires us to help find a key employee or
a partner they can merge with to become
larger and more sustainable."
There is no shortage of capital seeking
oil field service investments, assures Jason Turowsky, another Intervale partner.
"Interest rates are at zero or negative in a
large swathe of the global economy, creating a thirst for opportunities that generate yield," he explains. "The energy sector offers a relative opportunity, and bolder investors see the downturn as a good
time to put capital to work there."
In evaluating private equity partners,
Turowsky urges service companies to
look beyond capital. "Capital is the commodity," he emphasizes. "For a private equity sponsor and a service company to
work well together, they need to have good
personal chemistry and see eye-to-eye on
the ultimate vision for the company, because even with the best business plan,
something is going to go sideways."
Private equity firms' long investment
horizons allow them to stick with a company through tough times, Turowsky
comments. "We are not focusing on
month-to-month changes in performance.
Instead, we look at where the company
should be in three, four or five years, and
support its efforts to head in that direction.
This is a big benefit versus being in a public company environment where management is rewarded for short-term results, potentially at the expense of longer term objectives."
The downturn has forced many compa-
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