Challenge:
Charlie Taben, a principal at Wall & Main, worked for the first owner of private utility plants in the US – Catalyst Energy. The electric industry was de-regulating and Charlie joined a company formed by three former Salomon Brothers partners that was a developer of alternative energy projects. While they developed long-term assets such as hydroelectric projects, they needed to spur growth with operating assets and find a niche arena they could exploit. The decision was made to pursue an area the electric utilities were exiting – namely central steam systems in downtown districts. These assets provided heating and cooling to downtown areas – but were old and relatively small, so several utilities were interested in dispositions.
Deliverables:
The plan was to first acquire a company that owned smaller systems in Youngstown, Ohio and St Louis, Missouri. Charlie led the acquisition of the company which created the foundation for growth, acquiring the expertise to consolidate further acquisitions with the management team joining Catalyst. Charlie then led the acquisition of several steam systems in larger cities – Boston, Philadelphia and Cleveland. The acquisitions were largely funded with debt ($70MM) from the private placement group of Prudential. The leader of the Prudential team was a prominent executive that later became the CEO of Prudential. All of the acquisitions closed smoothly, as Charlie negotiated with multiple stakeholders, including key utility executives and local/state regulatory authorities.
Results:
The acquisition of central steam districts in 5 major US cities was a coup for Catalyst Energy, a new public company that was the initial leader in the Independent Power Industry. The assets provided Catalyst with much needed critical mass and cashflow, as it sought to grow rapidly. The transaction was a “win-win” as the electric utilities were able to shed smaller assets outside their core business, allowing them to focus on their electric needs. The regulators were also satisfied, as they had a new private owner that could manage important assets that were minor portions of larger enterprises. Overall, the acquisitions represented a success for all stakeholders, as unique assets were transferred to a new, private owner.