Sector Snapshot

For some dealmakers the energy sector has been hot. But it all depends on which area of the market investors play in. For example, firms that invest in companies that are supported by the drilling and fracking boom are seeing opportunities abound. However, the entire sector might have a strong 2014 as more dealmakers are looking at alternative energy investments. Private equity firms specializing in natural resources, including oil and natural gas, raised $22.5 billion in 2012, more than triple the $6.8 billion they raised in 2011, according to figures from data firm Preqin. That means we should see a lot more investment in this area as PE firms put this money to work. According to a recent KPMG survey, 28 percent of mid-market dealmakers expect the energy sector to be in favor during 2014.

Notable Deals

A number of strong deals in 2013 highlighted the interest of private equity firms and strategic investors in the drilling and fracking space. For example, in November, strategic buyer Devon Energy Corp. agreed to purchase GeoSouthern Energy Corp.'s Eagle Ford assets for $6 billion in cash, expanding its shale holdings in oil basins in the U.S. In October, Greenwich, Conn.-based private equity firm First Reserve Corp., winner of the 2011 M&A Mid-Market Award for Best Private Equity firm, agreed to acquire TNT Crane & Rigging, Inc. from Odyssey Investment Partners. TNT is a provider of lifting services and equipment to customers in the North American energy and industrial infrastructure end markets. In September, Anchorage-based investment company Bristol Bay Native Corp. purchased Houston-based Edgen Group, a U.S. based provider of specialty steel products to the energy sector.

Solar energy has also seen some activity as of late. In October, San Mateo, Calif.-based SolarCity (Nasdaq: SCTY) acquired venture-backed Zep Solar for approximately $158 million. Zep Solar is a provider of residential photovoltaic module mounting systems in the U.S., and the company has been one of SolarCity's primary component suppliers for residential systems.

Coming Up

Many of the different energy subsectors are expected to garner attention in 2014, as distressed assets and opportunities for add-on acquisitions emerge. Some of the larger private equity players are gearing up for action in the sector. Carlyle plans to raise $7 billion for energy funds in the next two years, with more than $3 billion earmarked for middle market energy and power transactions. According to the firm, the U.S. power markets will require $1 trillion in new investment by 2020 to meet consumer demand.

Fracking "has transformed the paradigm around natural resources from one of scarcity to a world of abundance," Carlyle operating executive Kenneth Hersh (pictured) told investors in November, according to Bloomberg. "The challenge is now about capital discipline and investing."

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