For the second time in a year, a local private equity firm has mined out a deal in Appalachia.
Basin Energy Group, a portfolio company of downtown-based Turning Basin Capital Partners, this month absorbed Katko, a Pennsylvania-based company that maintains natural gas well hookups.
It’s the fifth merger or acquisition by Turning Basin and its affiliates since its founding in 2013. The company initially was an offshoot of Ewing Bemiss & Co., a local investment banking firm that was absorbed in 2015 by financial giant KPMG.
The latest deal shows the group continues to be bullish on the natural gas industry, particularly companies that service existing wells and pipelines in and around the Marcellus and Utica shale basins throughout West Virginia, Virginia, Ohio, Kentucky, Tennessee, Pennsylvania and New York.
“We have had pretty good success in that geography out there,” Turning Basin managing director Mark Murray said. “Activity has been steady, if not improved, in the last 12 months.”
Turning Basin’s only deal outside of Appalachia was made last year near Houston, when it bought BBB Tank Services, which services above-ground oil tanks.
The Katko deal was fueled largely by competition, Murray said.
“We came across the business some time ago and we kept losing projects to them because they have a very good reputation in the market for predominantly well hookups,” he said.
While the company wouldn’t disclose the revenue its combined holdings generate, managing director Tom Willingham said acquiring Katko gives Turning Basin the right mix of businesses for continued portfolio growth. The company now has 300 employees.
“We think with this acquisition we have the profile we were targeting,” Willingham said.
Turning Basin funds its acquisitions with the help of a recurring group of investors from Texas, the Southeast and Virginia.
It typically targets companies valued below $25 million, often with annual earnings of $2 million to $4 million.
“We help them grow up, broaden their service offerings and broaden their customer base,” Willingham said. “We look to grow them north of $5 million (in annual earnings) and then look at options.”
Those options include a potential exit strategy by selling to other parties, including larger private equity firms.
Added Murray about the exit strategy: “We’ll let the market dictate what our options could be.”
With the closure of the Katko deal, Murray said, the group already is eyeing other transactions.
“We’ve got one in the hopper, a manufacturing business in the Deep South,” he said.