Bryan C. Frederickson has made a home in middle-market investment banking with GulfStar Group, Houston, for the past seven years. A graduate of Vanderbilt University, he began his career with KPMG’s corporate transaction group in Atlanta before returning to his alma mater to earn his MBA. He joined Wachovia Securities out of business school, working in loan syndications, with the internal private-equity group, and later, in telecommunications corporate finance. He next joined Navigant Capital Advisors LLC, focusing on middle-market investment banking and restructuring and overseeing investments by its $250-million debt opportunities fund.

GulfStar is the most active middle-market investment-banking firm in the Southwest U.S. Since 1990, it has completed nearly 600 transactions; about 60% were directly related to oil and gas.

Most of GulfStar’s energy deals involve oilfield services and products companies. “The unifying theme is private businesses with revenues of $20- to $300 million,” Frederickson says. “We know how to prepare them for market; we know the buyers, investors and lenders. We’ve established ourselves as subject-matter experts within the middle market energy space.”

Frederickson, now a managing director with Gulf - Star, is on the board of Crisis Intervention of Houston and participates in triathlons. Here, he discusses a recent digital oilfield deal and middle-market trends.

image- Bryan Frederickson

Investor Is there a lot of interest in oilfield services and products from private equity?

Frederickson Absolutely, not only from traditional energy industry investors, but also from generalist private-equity groups with expertise in areas such as business services or specialty manufacturing. While they are generally not interested in taking direct commodity risk, they want to apply their knowledge in particular areas by acquiring companies serving the oil and gas industry as part of their diversified portfolio.

Investor How has that market developed?

Frederickson We began to see heightened interest in mid-2006 during the run-up in commodity prices. There was a lot of technological change, with the rapid proliferation of fracturing and directional and horizontal drilling. A lot of smaller companies were popping up to provide services, growing the universe of middle-market businesses seeking to raise capital or sell.

With this rapid growth and readily available debt, it was a difficult time to accurately value businesses, and some acquirers overpaid. When the market turned abruptly in the fall of 2008, my experience with restructuring and distressed transactions proved useful. The debt market started to recover in 2010, and 2011 and 2012 to date have been record years for GulfStar.

Investor How have low gas prices affected the market?

Frederickson Companies serving exclusively the natural gas industry have struggled, but a lot of methods and technology developed for producing gas are now being applied to oil fields, so many of the assets are being redeployed. Most of the companies we work with have agreements with or sell to producers who have hedged production. Those hedges have been rolling off, so if a gas-related business is surviving, it should be able to withstand most any market conditions. The market for oilfield products has remained very hot. The U.S. is still the leader in technological development, and operators increasingly demand API-certified products. They aren’t allowing off-brand products to be used on sites, giving U.S. companies an advantage.

Investor What technologies are drawing interest?

Frederickson There’s a lot of interest in monitoring services and in data collection and analysis. We recently closed a $20-million early-round equity raise for Texas Energy Network (TEN), which is deploying a 4G LTE (long-term evolution) high-speed data network across exclusively licensed spectrum. It provides communication services to segments of the E&P, oilfield service and midstream industries in remote areas.

The founders, who were experts in the telecom field, were first movers in the space. They started in June 2011 funding from their own pockets, and put up TEN’s first tower in Andrews County, Texas. When they came to us they had revenue on that tower from two high-profile clients. It wasn’t a hard sell for them: production is the lifeblood for operators, and every well, tank battery, office and more in the oilfield needs access to high-speed data collection and reporting.

Investor Who took the deal?

Frederickson We approached energy- and telecom-centric private-equity and venture capital groups and got the deal done with a collection of energy private-equity individuals, outside their fund structures. It was a difficult placement, because it was so early-stage and required expertise across both the energy and telecom industries.

TEN is constructing the next towers now, in the Permian, has acquired spectrum in the Eagle Ford shale and is staffing up. It’s an interesting data point in the evolution of how assets are managed.

Investor What else is hot?

Frederickson Service providers related to repair and maintenance of midstream assets and petrochemical plants. Private equity likes businesses that generate recurring revenues. Many refineries had pushed their turnaround activity back, and now are catching up. The service providers have long-term contracts, and it’s easy to map out their projected income.