Acon Builds a Success Story From the Ashes of Enron

After a decade putting together a string of corporate buyouts, Acon Investments LLC is about to come into some real money, thanks in part to a Houston oil and gas exploration company that was orphaned by Enron Corp .

Acon -- which was co-founded in 1995 by Bernard Aronson with help from his friends at the giant buyout fund Texas Pacific Group -- is raising its first pile of cash to pursue deals. Until now, Acon has had to go out and raise money for each of its deals, a private equity business model that can be grindingly difficult even though it also can be very rewarding.

But that will soon end. Aronson last week said Acon is about to close on its first, $600 million buyout fund.

One of the reasons for the rush by investors to put money in Acon's hands is that Acon has scored one of the best mid-size buyout wins of the past year: Its 2004 investment in Mariner Energy Inc ., a Houston-based offshore oil and gas exploration company. An Acon-led partnership put up $100 million to help Mariner's management buy the company from Enron's bankruptcy estate. To date, that deal has returned more than four times the money to Acon's investors in less than 24 months -- and it's still appreciating in value.

In the private equity business, nothing draws money like success. Not reputation, not even a great idea.

"Our business is to find attractive investment opportunities and build value," Aronson said last week. "To that extent, Mariner was a good story for us. It caught the attention of the people who invested with us, and the attention of the people who didn't invest with us."

Aronson, an assistant secretary of state in the early 1990s who once negotiated with El Salvador's rebel leaders, and his Acon partner and co-founder Jonathan Ginns put together the Mariner deal and still serve on the company's board. Both took something of a victory lap last week in a telephone interview.

Mariner was valued at about $271 million when Acon led the 2004 buyout deal. Earlier this month, it became a public company, and, after a recent merger that made it one of the leading Gulf of Mexico drilling companies, is worth about $1 billion. According to my calculations, Acon will control just under 5 percent of the company, worth nearly $60 million. Raymond James puts a target price of $27 on Mariner's newly public stock; it was trading last Friday at slightly less than $20 a share.

Also, according to my crude calculations, the Acon partnership's $100 million has to date realized a return of more than $400 million.

Certainly, luck had something to do with it: Natural gas prices shot up.

But there's more to it than that. Mariner's management team, led by Scott Josey, navigated not only Enron's shoals but also stayed profitable for the last three years.

There's also the matter of having the guts to do the deal in the first place. In early 2004, when Ginns and Aronson identified Mariner as a potential buyout, the company was toxic, and it wasn't for sale. It was controlled by a special-purpose entity known as Jedi, one of those cockamamie "Star Wars"-named gimmicks ginned up by Enron's accounting magicians under former chief financial officer Andrew S. Fastow. Though Enron may have started out with designs to expand its deep-water oil exploration -- Mariner's specialty -- it instead used Jedi to goose its profits.

Except for its ownership by Jedi, Mariner operated wholly independently from Enron and wasn't implicated in any of its owner's scandals. But being a part of the Enron bankruptcy meant it was at a standstill. It couldn't borrow money for expansion or do acquisitions. It needed a new owner.

When Aronson and Ginns proposed a deal, they sought approval from the U.S. Bankruptcy Court overseeing Enron's liquidation, even though the trustee supervising Enron's assets hadn't gotten to the point of putting the company up for sale. Ginns said that they had trouble lining up financing for $171 million of the $271 million purchase price even after Carlyle/Riverstone , an energy-investing affiliate of the giant Carlyle Group, partnered with Acon to do the deal. (Acon was always the lead investor, though Carlyle put up about 66 percent of the cash required to buy Mariner.)

A year later, the energy team at Arlington investment bank Friedman, Billings, Ramsey Group Inc. created the first payout for Acon. In a private offering that sold 31 million shares of Mariner stock to several hundred investors, Carlyle/Riverstone cashed out and Acon sold most of its stake. Carlyle/Riverstone and Acon combined took in $363 million in cash from that deal. Acon held on to a small stake in Mariner.

Mariner was still private at that point, but on March 3, the shares began trading on the New York Stock Exchange.

Ginns gives most of the credit to Mariner's management team, which was shackled when Enron went under. "The most significant thing we saw from the beginning was the management team here really was stellar and underappreciated because of the levers they couldn't pull," he said.

Terence O'Hara can be e-mailed atoharat@washpost.com.