Thermo's initial business plan was to produce electricity using the principles of thermodynamics, hence the name. Over the years Thermo has grown beyond electricity generation, but remained true to the First Law of Thermodynamics, the Conservation of Energy, by converting its ample energy and capital from its early successes into value across a diversified group of companies and assets. Since inception Thermo has uncovered opportunities to develop or buy assets where others either failed to see the potential, were unwilling to do the hard work necessary to create value or were structurally unable to hold on to their position.
The years preceding Thermo's founding in 1984 saw heightened energy price volatility, leading the United States to encourage energy conservation with the enactment of PURPA. Thermo saw opportunity in this paradigm shift and developed a $60 million 76 MW cogeneration facility at the University of Northern Colorado. Five years later, construction of two more Colorado projects began at a total cost in excess of $250 million. In 1996 a fourth Colorado project began at a Conagra facility.
The early projects made Thermo the largest consumer of natural gas in Colorado. Considering its significant gas consumption, Thermo decided it should control its input costs by developing gas reserves. These operations grew to over 150 wells and 563 billion cubic feet (Bcf) of reserves and were consolidated within the cogeneration companies. The internally hedged fuel costs drove profitability and cash flow higher.
Ultimately the cogeneration and gas assets were merged through a series of transactions into KN Energy, which later merged with Kinder Morgan. By the end of the cogeneration era, the initial $42,000 investment generated value of over $800 million in cash and stock. Thermo continues to hold a substantial equity stake in Kinder Morgan today.
During the middle of cogeneration's life cycle, Thermo began diversifying opportunistically into real estate in the western United States. In the mid 1990's, the company purchased two city blocks located in the LODO neighborhood of Denver, an area experiencing the early onset of a robust building boom. One of the blocks, located adjacent to Denver's Coors Field baseball park, was the site of the Union Pacific Freight house, which was redeveloped into restaurants, clubs and Thermo’s headquarters. The Ice House project was the second block and is another example of a redeveloped historic property. While Thermo played an early role in helping make LODO a great neighborhood, in hindsight there was substantially greater opportunity to deploy capital than was realized, a fact that is evident by just walking out of Thermo’s offices.
In the early 2000’s, real estate efforts extended beyond Denver into Los Angeles and Montana. The Los Angeles investments, including the Roosevelt Building and a block near the Staples Center, were a response to Japanese investors aggressively selling U.S. real estate to relieve their balance sheet stress. These investments were short lived but very profitable. In Montana, Thermo created Gallatin Preserve, a 1,632-acre parcel of land located in Big Sky and situated between The Yellowstone Club and the Spanish Peaks Moutain Club. The property is now comprised of ten 160 acre private mountain ranches, each with a five acre building site. Thermo continues to own and operate this project and is encouraged by the significant amount of development all around the property. Capital invested into real estate since inception was roughly $50 million which has generated cash and unrealized value of approximately $175 million.
Thermo has also been active in industrial businesses including backing a senior management team that had been a long-time supplier to the cogeneration business, with an investment to purchase two related companies, United Engines and UE Manufacturing (collectively “United"). United was in the diesel engine distribution and power transmission businesses. Combined revenue in 2001 was $50 million and grew to approximately $250 million by 2007 when the investment was exited. The management team did a great job of expanding United into adjacent businesses. The stake in United was sold in 2007 to the management team and other financial buyers, generating total proceeds of six times the original investment in less than six years.
Also, because of the history in cogeneration, Thermo was able to identify opportunistic periods to purchase, hold and resell gas turbines which was done multiple times. In summary, the industrial sector has been productive with a modest $25 million total investment turning into proceeds of just under $80 million. While small relative to the other investments, the working knowledge developed has been and will continue to be put to profitable use for many years to come.
Following the telecom crash in the early 2000’s, Thermo began surveying the market for assets under duress where significant capital had been destroyed. In 2002, the company purchased a stake in e.Spire for $15 million and reorganized it into Xspedius. Ultimately about $100 million was invested into Xspedius, which was sold to industry bellwether Time Warner Telecom a few years later, with Thermo receiving $260 million of Time Warner Telecom stock. Shortly before that transaction, Xspedius spun off FiberLight to Thermo, which began actively managing its modest 1,258 route miles of fiber. Since then FiberLight has grown into one of the largest fully independent regional fiber providers in the United States, with nearly 13,000 route miles, 1.5 million fiber miles, more than 30 metro area networks and approaching 3,000 on-net sites.
The Time Warner Telecom stock was held through its subsequent merger with Level 3 Communications. Despite Thermo’s objection to receiving cash, this transaction was divided into cash and stock. Three years later, CenturyLink and Level 3 merged in another cash and stock transaction – again the preference was for all stock. At the end of 2017, Thermo was one of the top CenturyLink shareholders. In total across these telecom investments, the initial $100 million investment has generated realized and unrealized value approaching $1.6 billion.
In 2004, Thermo invested in bankrupt low earth orbit satellite service provider Globalstar. This has become the company’s largest investment to date with nearly $700 million at stake. The original investment in Globalstar was made at a fraction of Globalstar’s replacement cost, similar to the investments in gas turbines and fiber. Beyond the core satellite operations, Thermo saw significant long term upside potential from the company’s spectrum assets. When Globalstar’s 1st generation satellites began to prematurely fail, Thermo stepped up with more equity and sought financing for a 2nd generation constellation. Unfortunately, this was at the beginning of the financial crisis. Despite all the hurdles Globalstar faced, the new constellation was financed and launched. The company has also successfully concluded its regulatory process with the FCC which permits it to use a portion of its satellite spectrum for terrestrial services. Globalstar is now pursuing similar approvals around the world for its spectrum.
Globalstar's unique collection of satellite and spectrum assets justified the significant investment to date. With the primary risks of U.S. regulatory and satellite launches behind the company, efforts are now focused on driving value by deploying the terrestrial spectrum in the U.S. and abroad, delivering new satellite products to the market, and new global services like connected car.