The Advisor’s Guide to Midstream/MLP M&As
The consolidation of MLPs by their parents or significant owners is a multi-year trend that peaked in 2018-2019 and has continued since.
Consolidations of MLP by parent companies, privatization agreements and other mergers and acquisitions activity have had a significant impact on the energy infrastructure universe in North America. Since the end of 2015, the number of companies in the universe has almost halved, but the total market capitalization at the end of 2021 was relatively in line with the level of 2015, according to Stacey Morris, Research Director at Alerian.
“While the motivations for these transactions have varied, most transactions in the past have focused on simplifying structure,” Morris writes. “Parent buyouts today may in some cases reflect the evolving business model and changes in capital markets that have prevented parents from using MLPs for their original purpose of generating cash for the company. mother by selling her assets to the MLP.”
These “drop-down MLPs” have typically had parents who were refiners, producers or integrated majors, which tend to trade at lower EBITDA multiples than mid-tier MLPs, Morris says.
There have been several examples of parents offering to buy their MLP in recent history, including a few deals that are expected to close imminently.
Outside of interfamily consolidation, there have been a few examples of mergers and acquisitions within the MLP space that have combined complementary asset footprints, creating cost and operational synergies, according to Morris.
On February 1, Crestwood Equity Partners (CEQP) announced the closing of its acquisition of Oasis Midstream Partners, which expands CEQP’s presence in the Permian Delaware Basin and Williston Basin in Montana and North Dakota, according to Morris. Energy Transfer (ET) strengthened its positioning in Oklahoma and the Ark-La-Tex region with the acquisition of Enable Midstream Partners in December 2021.
Despite significant free cash flow generation in the midstream and increased M&A activity by oil and gas producers in recent years, there are no more consolidation deals in the space. intermediary for several reasons.
“For energy assets in general, volatility in commodity prices can complicate valuations and make it harder for buyers and sellers to agree on a price. For the midstream sector, M&A activity can be complicated by significant parental or insider ownership,” writes Morris. “Enable Midstream and Oasis Midstream had parents with significant holdings, although OGE Energy (OGE) and CenterPoint Energy (CNP) had been considering strategic alternatives for Enable since some time. Transactions could also be complicated by regulatory scrutiny and heightened scrutiny of potentially anti-competitive agreements.
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