Subject: re : heartland industrial partners
heartland industrial partners is one issue we did not discuss this morning . these e - mails summarize the situation . i have not been able to get resolution yet on who provides the home for this investment . it doesn ' t fit ena . bowen doesn ' t want it in eim . ees does not want to invest this kind of capital ( although delainey did ask for some additional information ) .
- - - - - - - - - - - - - - - - - - - - - - forwarded by richard lydecker / corp / enron on 02 / 13 / 2001 03 : 39 pm - - - - - - - - - - - - - - - - - - - - - - - - - - -
richard lydecker
02 / 12 / 2001 01 : 42 pm
to : david w delainey / hou / ect @ ect
cc : brian redmond / hou / ect @ ect
subject : re : heartland industrial partners
with respect to your questions concerning the heartland industrial partners fund and current investments :
heartland is a private equity buyout fund with $ 1 . 2 billion in commitments . the targeted size of the fund is $ 2 billion . the fund is headed by david stockman , former managing director at the blackstone group . stockman was director of omb under reagan .
heartland ' s objective is an irr of 30 % gross ( 26 % to the limited partners ) . the limiteds get an 8 % preferred return after which the gp gets a 20 % carried return . the gp also receives a 1 . 5 % management fee . in my experience these terms are consistent with most private equity funds .
the fund ' s objective is to acquire and expand industrial companies " in sectors ripe for consolidation and growth . " these " industrial platform scaleups " are targeted to be in sectors such as aerospace components and materials , automotive suppliers , capital goods , chemicals , plastics conversion , metal working , etc .
the fund has two investments currently :
mascotech is a merger of three fund companies . it is a leading global designer and supplier of high quality , low - cost metal formed components , assemblies and modules for the transportation industry . products include noise vibration and harshness products , transmission and transfer case components , engine components , wheel end and suspension components , axle driveline components . estimated revenues were $ 1 . 9 billion in 2001 . the company has 50 facilities in 11 countries . 9 , 500 employees .
an agreement to purchase collins & aikman corporation was signed in january 2001 . c & a is a leader in automotive floor and acoustic ceilings and a leading supplier of automotive fabric , interior trim and convertible top systems with 2000 sales of $ 1 . 9 billion .
the original dash in april 2000 predicated that " ena will receive the exclusive right to provide all energy - related products and services to each platform company owned by the fund . . . ena will submit a comprehensive , long - term , energy managment plan for each platform company . hip will be obligated to accept and implement the plan as long as the plan provides a cost benefit relative to the platform company ' s current practices after accounting for switching costs . the expected value of this business to ena is about $ 20 - 50 mm . "
- - - - - - - - - - - - - - - - - - - - - - forwarded by richard lydecker / corp / enron on 02 / 12 / 2001 01 : 04 pm - - - - - - - - - - - - - - - - - - - - - - - - - - -
from : raymond bowen / enron @ enronxgate on 02 / 09 / 2001 07 : 04 pm
to : david w delainey / hou / ect @ ect , richard lydecker / corp / enron @ enron
cc : brian redmond / hou / ect @ ect , wes colwell / hou / ect @ ect , raymond bowen / hou / ect @ enron , jeffrey mcmahon / enron @ enronxgate
subject : re : heartland industrial partners
dave ,
congrats on your new role . heartland industrial partners was an investment pursued solely for the purpose of providing deal flow for energy outsourcing opportunities when ena ' s industrial group was following a broad based energy outsourcing business plan . it has zero relevance to eim ' s business . in fact , heartland has been reflected on ena ' s balance sheet ever since the creation of eim last august . brad dunn has administered the relationship as a transitional matter in the intervening months . brad has attempted to get ees to take on the transaction , but they have expressed no interest in the capital commitment . however , ees wants the option to look at the energy outsourcing opportunities in the transaction . if i thought i could get a free option , i would take the same position . if enron is to get anything out of heartland industrial partners beyond the return on our invested dollars , that value will come to ees . since there is no paper or steel aspect to heartland , it doesn ' t belong in eim and i don ' t want it . i would be happy to discuss .
on a different note , there are lots of opportunities for ees and eim to work together on ( i ) energy opportunities in eim ' s pulp colwell , wes ; raymond bowen / hou / ect @ enron
subject : heartland industrial partners
richard , it is my understanding that this investment is currently in ray bowen ' s business . in my ena shoes , i would say we would have no interest in taking on that responsibility . in my ees shoes , i would like to take a closer look at the possible connections . please send me some info on the investment fund and their current investments portfolio .
i have also heard that tom white has been talking to you about ees taking on the catalytica investment . with my ees shoes on , no way ! ! ! !
regards
delainey
- - - - - - - - - - - - - - - - - - - - - - forwarded by david w delainey / hou / ect on 02 / 09 / 2001 05 : 56 pm - - - - - - - - - - - - - - - - - - - - - - - - - - -
richard lydecker @ enron
02 / 07 / 2001 09 : 01 am
to : david w delainey / hou / ect @ ect
cc : brian redmond / hou / ect @ ect , wes colwell / hou / ect @ ect
subject : heartland industrial partners
dave , in may 2000 enron north america committed to invest up to $ 30 million in heartland industrial partners l . p . , a private equity fund . the terms of the fund investment are fairly typical ( and not particularly exciting for a limited partner such as we ) . the deal was " sold " on the basis of ena getting exclusive rights to provide energy management services to companies owned by the fund if these were cost effective . the claimed benefits for the energy management tie were calculated at $ 20 - 50 million . the deal was originated by brad dunn who now is in eim . ownership of this commitment had been assigned to jim ajello .
the kinds of energy management services associated with this deal are now provided by ees . while they are happy to exploit any opportunity , their business plan does not contemplate investment substantial capital in this kind of deal . in short , they have no interest in picking up the commitment ( and capital employed ) via an intercompany transfer .
private equity funds such as this are highly illiquid by design and the normal investment cycle is at least 5 - 7 years . the heartland partnership has a 10 - year life , enron did negotiate the right to sell its lp interest after 3 years . as a practical matter , that right guarantees neither a fair price or even a market .
there is no logical home for this investment that i know of in ena except in my portfolio . question : is this an ena responsibility or would it move to eim ' s balance sheet ? if we ( ena ) have no choice but to retain the investment , my group will take responsibility for it and do our best to monetize funds invested to - date ( about $ 6 million ) and sell the remaining commitment . since the fund itself is still marketing limited partnership interests , however , it will be extremely difficult to get out of our investment / commitment in the foreseeable future . under any circumstances finding a buyer will be time - consuming and expensive . ( this is a poster child for " patient " investment capital ) .
i want to ensure that you are aware of the situation in case your view is that the obligation should be transferred to eim which i believe has assumed the charter of the ena group that formerly managed this investment . dick .
