Macquarie to Acquire Remaining Stake in International-Matex
Infrastructure service provider Macquarie Infrastructure Company LLC (MIC) recently inked a definitive agreement to acquire the remaining 50% stake of International-Matex Tank Terminals that operates 12 bulk liquid storage terminal facilities in North America. The transaction, worth over $1 billion ($910.0 million in cash and $115.0 million in stock), equates to International-Matex’s enterprise value of 10.7x trailing 12-month EBITDA of $279.6 million.
In May 2006, Macquarie had acquired a 50% ownership stake in International-Matex. By purchasing the remaining stake in the company from the founders of the business, Macquarie will gain full ownership control of International-Matex to strengthen its stable, largely contracted revenue based business model.
Transaction Rationale
Since its initial investment in 2006, International-Matex’s EBITDA has increased manifold from approximately $67.0 million in 2005 to $279.6 million for the trailing 12-month period ended Mar 31, 2014. The growth is primarily attributable to both pricing power and deployment of additional capital in high ROI projects at the business. On its part, Macquarie has actively participated in the development of approximately $800.0 million worth of such projects year-to-date and envisions further opportunity of additional growth in the future through significant capital investments.
Being closely associated with the helm of the business for over eight years, Macquarie has an in-depth knowledge of the inherent strengths of the company on which it can capitalize to continue the growth momentum. Macquarie also intends to implement better controls and processes for expense management and capital expenditure maintenance and leverage International-Matex’s consolidated procurement capability to gain added mileage.
Strategic Benefits
The transaction will enable Macquarie to consolidate International-Matex’s results for its own financial reporting and tax purposes for increased clarity and elimination of a double layer of taxation. Post-acquisition, International-Matex will no longer be required to pay federal taxes and Macquarie will no longer pay tax on distributions received from it in excess of the Federal Dividends Received Deduction amount.
The transaction is expected to be accretive to Macquarie’s free cash flow in 2014, increasing 11.2% year over year to $4.55 per share (excluding transaction-related expenses). The company also introduced free cash flow guidance for 2015 at $5.10 per share, representing year-over-year growth of 12.1%. Since 2007, free cash flow per share in Macquarie has grown by 12.3% each year on an average.
The company intends to distribute this cash as dividends as it targets a payout between 80% and 85% of the free cash flow. Macquarie immediately raised its second-quarter 2014 dividend to 95 cents per share or $3.80 annualized, up 1.3% year over year. For additional liquidity, Macquarie also put in place a $250.0 million revolving credit facility.
Moving Forward
The acquisition will likely offer an opportunity to improve operations, business development, commercial and support capabilities at International-Matex in addition to improved efficiency in allocation of capital for higher growth opportunities. The transaction is expected to close in late July, subject to the fulfillment of the mandatory closing conditions and regulatory approvals.
Macquarie owns and operates a diversified group of infrastructure businesses in the U.S., including a gas processing and distribution business, Hawaii Gas, several entities comprising a Contracted Power and Energy segment, and International-Matex. The company also owns and operates an airport services business titled Atlantic Aviation.
Macquarie presently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include ITT Corporation (ITT), Compass Diversified Holdings (CODI) and CLARCOR Inc. (CLC), each of which carry a Zacks Rank #2 (Buy).
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