Oil & gas firm EP Energy reportedly is preparing to go public after less than two years as a privately held company.
A closer look suggests the process is still in the early stages, and a deal might not happen until the fall. Interestingly enough, it was only back in February 2012 that Apollo Global Management (APO) led a buyout of the company for a cool $7.15 billion. EP was a part of El Paso Corporation, which was itself purchased by Kinder Morgan (KMI) for $21.1 billion; the firm only wanted to retain the pipeline assets.
All in all, EP holds a diverse set of producing assets with a focus on oil, including areas like the Eagle Ford Shale, Wolfcamp Shale and Altamont Field. There are some natural gas and coal properties as well, but the company is in the process of selling them off.
EP plans to spend anywhere from $1.7 billion to $1.8 billion in capital expenditures, across roughly 4,288 drilling locations, for the current year. But the returns are expected to be juicy for its properties, ranging from 15% to 50%.
To help smooth out the volatility — which can be significant with oil prices — EP has a sophisticated hedging programs in place. The result has been fairly stable EBITDA, which came to about $1.4 billion for the past 12 months. Assuming a multiple of 6x, an IPO could fetch a valuation of more than $8 billion.
So will investors be interested? Well, Apollo has posted a good track record with its deals:
|Norwegian Cruise Line||NCLH||49%|
|Berry Plastics Group||BERY||39%|
The firm also has a sizable backlog of deals that includes CEVA Logistics, Athlon Energy, Sprouts and Claire’s.
It’s a fair concern that Wall Street might soon get loaded up with too many transactions — and amid the recent market volatility, that pushback could already be starting. Just last week, half of six planned IPOs didn’t come through.
In light of that crowding, it’s smart that Apollo wants to rush the EP deal. IPO windows can shut quickly, and droughts can last for a while. Perhaps this is why Apollo’s CEO Leon Black recently said: “We think it’s a fabulous environment to be selling. We’re selling everything that’s not nailed down.”
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.