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KPS Capital Bets on Lufkin Unit of Baker Hughes

NEW YORK – KPS Capital Partners, whose leaders include global businessman and philanthropist Michael Psaros, KPS co-founder and managing partner, has agreed to acquire Lufkin business from oil-field services company Baker Hughes Co. according to an article in the Wall Street Journal written by Luis Garcia.

According to WSJ, “the firm regards the deal as an opportunity to capitalize on ‘historic dislocation’ in the energy markets, said Michael Psaros.

“We’re not focused on the price of oil today or in June or in September,” Psaros said. “We understand that the world is going to remain dependent on hydrocarbons for the next few decades and the U.S. will remain one of the world’s primary producers.”

Benchmark U.S. crude prices closed at $18.84 a barrel Thursday, down nearly 70% this year as economic paralysis imposed by the coronavirus pandemic has reduced demand for fuels around the world.

The oil-price plunge has raised pressure on energy companies to shed assets. Houston-based Baker Hughes said in April it was cutting jobs and slashing capital spending in response to the downturn.

Psaros said KPS isn’t using debt to finance the deal because it believes balance-sheet strength will give Missouri City, Texas-based Lufkin an edge over cash-strapped competitors,

“This is not the time to put leverage on companies in the energy business,” he said. “KPS is going to provide the Lufkin platform with the capital it needs to grow organically and through acquisitions.”

He added that Lufkin’s products, which are used in oil production rather than exploration, will also help make the business more resilient in the face of future market downturns because producers still need equipment to operate existing wells even as they stop drilling new ones.

Founded in 1902, Lufkin manufactures surface pumps, downhole sucker-rod pumps, and other equipment used in artificial-lift systems such as pumpjacks. The company operates six plants around the world and has about 950 employees, Psaros said.

The Lufkin deal is illustrative of KPS’s strategy of carving out units from large companies and then helping the independent businesses expand. The firm’s portfolio, which has nine companies, includes Howden, a Scottish maker of compressors, steam turbines and other air and gas handling products that KPS bought last year from Colfax Corp., based in Annapolis Junction, Md.

Psaros said KPS’s global presence is helping its portfolio weather the pandemic, as Asia is already recovering while lockdowns persist in most U.S. states.

“Obviously we’ve had a material reduction in revenues, cash flows, and profit,” he said. But he added that despite the acute nature of the pandemic, the portfolio “is performing quite well.”

The Lufkin deal is one of the last investments KPS plans to make from its fourth flagship fund, which rounded up $3.5 billion in capital commitments by the time it closed to new investors in 2013, Psaros said. The firm said in October that it had raised $6.12 billion for its fifth flagship fund.”

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