Seventeen sovereign funds rejected Jacobs's oil roll-up over ESG mandates
Brad Jacobs · Brad Jacobs – Masterclass on Leadership and Management (EP.368) · Feb 12, 2024 · at 24:40
Brad Jacobs explains why he abandoned a planned M&A platform in traditional energy despite compelling 2x-3x cash flow valuations.
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“I was thinking about returning to my roots of energy. Spent a lot of time in Houston, a little time in New Orleans, et cetera. And talked to a lot of oil folks, love the business, and couldn't raise money for it. I talked to the 17 or so sovereign wealth funds and pension funds that I'm traditionally close to in Singapore and Canada and Middle East, and I said, hey, look, I found an industry here that is out of favor because of ESG, but it's not going away for a long time. We don't have something to replace it with yet, and you can buy things for two or three times cash flow. How could you go wrong doing that? It's really, really cheap. Value is important, particularly with M&A. It's the IC and ROIC. So having a low IC is very important. So I was enamored with it. I said, wow, so many opportunities to buy things where you have your money back in two or three years, and then you have this annuity, so to speak, for 1015, 20 years of your capital is already back to you on an unlevered basis. But nobody wanted to finance this. It was just one after another. They said, we'd love to support you, but we're not going to support you in that. For their own reasons with ESG and so forth.”
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