Middle-market private equity firm Blue Wolf Capital Partners LLC has joined up with K2 Energy Capital LLC to identify and co-invest in energy services companies.
Both firms have focused on control investments in the past—New York-based Blue Wolf in middle-market companies and K2 Energy, based in Dallas, in energy services, including oilfield services, utility services and equipment manufacturing. K2 Energy’s founder and managing partner, Kevin Kuykendall, has served as a consultant for Blue Wolf for a year, and with the new partner arrangement, he joins the Blue Wolf investment team to work exclusively with the firm. The deal isn’t an acquisition of K2 Energy, but all future K2 investments will be made through the arrangement. The investments will be jointly sourced and executed, with the investments made through Blue Wolf Capital Fund III and with K2 Energy investing alongside.
The partners haven’t yet made investments through the arrangement, but have several transactions in the works, with hopes of closing at least one of them before year end. They will focus on energy services businesses and equipment manufacturers--primarily in oilfield services, with potential exposure to utility services. The firms expect to invest in one or more platform companies and then grow those businesses both organically and through add-on acquisitions.
Kuykendall says that low commodity prices have caused severe distress across the energy sector, providing investment opportunities in energy-related companies at attractive prices, and those companies can expand significantly when the energy sector recovers.
Before starting K2 Energy, Kuykendall worked for American Capital Limited (Nasdaq: ACAS), creating the American Capital Energy Group with an investment portfolio of nearly $1 billion. Before that, he co-founded the Enron North America Principal Investments Group.
Adam Blumenthal, managing partner of Blue Wolf, says that Kuykendall “is uniquely plugged in to the energy services industry, with relationships, skills and experience that will complement our core competency of unlocking value in complex situations.”
Blue Wolf Capital has invested in companies with challenging situations and complex relationships between customers, employees, unions and regulators, and the partners will use a similar approach with their energy services investments. Kuykendall has invested in oil and gas production, coal production, drilling fluids services, fluids transportation and disposal services, oil and gas well tool manufacturing, high pressure flow control equipment makers, ethanol production, underground utility locating services and drill bit manufacturing businesses.
K2 Energy’s recent investments have included FHE, which makes and tests fracking equipment used by North American oil and natural gas drilling businesses. K2 jointly invested in FHE with Basin Holdings US. LLC, an oilfield supply and service company, in 2014. In 2010, K2 sold Innova Electronics Inc., maker of printed circuit boards used in oil and gas well drilling and measurement tools, to Hunting PLC.
Blue Wolf’s recent deals have included acquiring a majority stake in North American Rescue, supplier of medical tourniquets, chest seals and decompression needles, in 2015 for undisclosed terms. In 2014, a portfolio company of Blue Wolf, Channel Technologies Group, acquired Materials Systems Inc., which provides sonar technology for finding landmines and torpedoes and for oil and gas exploration.