Texas PE Leaves Energy Behind Over Last Decade

Texas, long a destination for oil and gas specialists, in recent years has drawn deal-makers pursuing a much more eclectic style of investing.

Consider nine-year-old Gauge Capital, which last January took in $800 million for a third fund earmarked for business services, consumer services, healthcare, industrials, government, and food companies. Energy isn’t touted on the firm’s website as a target industry.

In Dallas, 10-year-old Trive Capital this spring secured $2 billion for a pair of funds, including a flagship buyout fund. Yes, some of that money is earmarked for energy services. But just two of the firm’s 46 active portfolio companies operate in energy. The rest operate in a host of other sectors, including aerospace and defense, business services, chemicals, consumer goods, manufacturing, and healthcare.

And just this summer Trive Capital alum Arenova Capital set up shop in Dallas to make both control and non-control investments in companies operating at the intersection of technology, media and communications.

Michael Butler, chairman and CEO of Seattle-based investment bank Cascadia Capital, earlier this year relocated to Austin to help oversee his firm’s nationwide expansion. Butler’s areas of expertise? Robotics, automation, artificial intelligence, food, beverage, and agribusiness.

“Cascadia has become a national firm and we closely monitor activity in the regions we serve,” wrote Butler in response to the question of why he chose to relocate to Texas. “We have seen more activity in the middle of the country. We like big, growing, and inefficient markets and we think the central time zone, and Texas in particular, fit that description.”

A deep dive into the deal database of SPS by Bain & Co reveals why Texas has become so popular with private equity firms operating outside the energy sector in recent years. Consider the difference between this year’s sponsor-backed deals and those in 2014:

  • Of 338 companies acquired by private equity firms so far this year in Texas, just 29, or fewer than 10 percent, operate in energy and natural resources. The most popular sectors this year include Industrials (73) Business Services (59), Technology (51), Consumer (42), Healthcare (40), Financial services (29)
  • Just eight years ago, the market weighted far more heavily toward the energy market. Of the 348 companies acquired by private equity firms that year, 109, or more than 30 percent, operated in Energy and Natural Resources. That made it by far the most popular sector that year. In second place came Industrials (67), followed by Business Services (42), Consumer (36) and Technology (35).

If the diversification trend continues, expect to see far more private equity firms and investment banks setting up shop in Austin, Dallas, and Houston in the coming months.

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