US PE firm delays sale of stake in Ascent Resources after Adic files lawsuit against it

US private equity (PE) group Energy & Minerals Group (EMG) delayed its planned sale of its stake in US natural‑gas driller Ascent Resources to a sister fund to at least February, after Mubadala-owned Abu Dhabi Investment Council (Adic) filed a lawsuit against it, the Financial Times reports. The sovereign wealth fund argued that the move, which would see it sell to a continuation fund that it owns — a popular strategy for PE firms as of late — aims to lock in windfalls at the expense of other investors, including Adic.

The issue largely boils down to a disagreement over Ascent’s valuation. One of the investors in the gas driller told the FT they view it to be worth over USD 7 bn, including debt, the Financial Times reported separately. EMG, however, had planned to buy its 30% stake via the continuation fund for roughly USD 5.5 bn, a figure Adic argues does not reflect its true value. EMG is also proposing to pay investors over two years, reducing the present value of the proceeds. Other PE groups specializing in energy passed on the transaction, viewing it as overvalued, sources familiar with the matter told the news outlet.

Adiic also claimed the transaction would incentivize EMG to buy out its current investors “at as low a price as possible.” EnterpriseAM was unable to verify the size of Adic’s stake in the company.

That’s not all: The complaint criticized the speed and tactics EMG used to secure investor approval, describing them as “underhanded” and “misleading,” and claimed the firm concealed alternative paths such as IPO plans and interest from outside buyers.

The dispute spotlights a rising issue as continuation funds grow in popularity on the back of difficulty among PE firms to find lucrative sales or exits for their investments. The transactions allow firms to retain control of portfolio companies while resetting management fees, but they have also been criticized as potentially creating conflicts of interest, as the seller and buyer are essentially the same entity.

EMG is currently struggling to deliver strong returns, with its four most recent funds delivering net returns of 10% or less. It hasn’t launched a new fund since 2019, and earlier this year it completed a USD 1.1 bn continuation fund for midstream assets held in older funds.

What’s next? Adic is now seeking to force EMG to launch a formal sale process for Ascent.