When private equity firm TPG Capital offered Jeff Dimery the job of revitalising Alinta Energy more than five years ago, he set two conditions. TPG must agree to address the balance sheet, which carried too much debt, and allow him to hire and fire anyone he wanted.
Dimery jumped ship from his senior role at AGL Energy in March 2011 and threw himself into the task of turning around the distressed power generation giant, which was in need of some love after being caught up in the spectacular collapse of former owner Babcock & Brown.
It is not unkind to say he inherited a basket case. Alinta was carrying almost $2 billion in debt but only making $145 million a year in earnings before interest, tax, depreciation and amortisation.
Dimery says one of the first things he did was to replace the top layer of management and around 75 per cent of executives in the next layer down. He set up cross-functional "SWAT" teams to oversee the key areas of trading, retail, finance and legal, and did a diagnostic on every asset.
A five-year campaign to turn the company around means Alinta has tripled its EBITDA to around $370 million and slashed its debt to $1.2 billion. It has achieved this without spending money on new assets at a time when energy consumption declined 15 to 20 per cent.
Consolidating position
This has been achieved by modifying plants, renegotiating upstream gas and customer contracts, exiting coal-fired generation and consolidating the company's position in the Western Australian gas and electricity market. It is now looking to grow market share on the east coast, a market that is dominated by AGL Energy and Origin Energy.
Alinta has 88 per cent of the gas and electricity retail market in Western Australia with more than 600,000 customers. This compares to around 189,000 retail customers on the east coast.
Dimery says he hopes to grow Alinta's east coast market share from 2 per cent to 5 per cent over the next three to five years.
The last time Alinta made headlines was shortly after the global financial crisis when it went through a series of reincarnations following a 2007 takeover by Singapore Power and Babcock & Brown. TPG has controlled Alinta since a debt-for-equity swap in early 2011.
Retail investors are about to hear a lot more about the company as it prepares for a potential $4 billion-plus stockmarket float. This will make it the biggest initial public offer this year, by far. Retail investors, particularly in Western Australia, are likely to feature heavily on the register.
Dimery will not discuss any float plans but it is believed he has been sounding out investors in Australia, Asia, Europe and the United States over the last two weeks about a potential listing in November.
It will not be an easy sell despite Alinta's attractive suite of infrastructure assets and stable cash flows. A trade sale fell through earlier this year.
Investors are wary of private equity exits following the collapse of Dick Smith and problems at aged-care provider Estia. However, Alinta will be one of TPG's last exits under Ben Gray, who will want it to do well from a reputational point of view as he prepares to set up his own fund.
Fund managers have also raised concerns that AGL, which looked at buying Alinta's Western Australian assets under the original trade sale plan before it went down the IPO route, will use its larger balance sheet to compete directly in the west by organically growing its customer base in the region.
That is what happened when AGL missed out on the privatisation process in NSW to Origin Energy in 2010.
However, Alinta says the WA gas market is notoriously difficult for a new entrant to break into because most of the consumption occurs in winter, all of the gas comes through a single pipeline, and there is limited storage capability.
It is also pitching its long-term contracts, capital-light and low-cost business model, and track record of securing clean energy opportunities as selling points.
It will all come down to valuation in the end, and Alinta will likely be priced somewhere in between utilities such as APA and DUET, which trade at 14 times forward earnings, and Origin and AGL on nine times.
