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Why recent midstream transactions signal strong activity

Ingrid Pan, CFA

Why midstream mergers and acquisitions remain active (Part 1 of 3)

October’s large midstream deals

Earlier in October, several large deals were announced in the midstream space. This is a strong signal that M&A (mergers and acquisitions) activity in the midstream space remains very active.

Firstly, on October 10, Regency Energy (RGP) bought PVR Partners (PVR) for total consideration of $5.6 billion. PVR noted that it expects to earn 2013 EBITDA (earnings before interest, tax, depreciation, and amortization) of roughly $315 million, resulting in a purchase multiple of roughly 18x enterprise value to 2013 EBITDA. PVR’s business primarily comprises midstream assets in the high-growth areas of the Marcellus and Utica shales, midstream assets in the Mid-Continent region with exposure to the Granite Wash play, and coal royalties businesses across the US. Regency had lacked significant midstream assets where PVR’s footprint was, and noted that the transaction was highly complementary to its existing asset base.

Secondly, also on October 10, another midstream corporate-level acquisition was announced by Crestwood Midstream (CMLP). CMLP announced that it would acquire Arrow Midstream Holdings, a privately held midstream company, for total consideration of $750 million. Arrow’s assets are substantially all located in the Bakken Shale area in North Dakota, and are closely positioned with respect to Crestwood’s existing Bakken Assets. Crestwood noted that it bought Arrow for a multiple of 10x to 10.5x 2014 EBITDA.

Thirdly, Buckeye Partners (BPL) announced that it would acquire 20 liquid petroleum products terminals from Hess Corp. (HES), all located along the East Coast for a total of $850 million. Buckeye stated that it believed that the acquisition multiple was less than 8x 2015 EBITDA, but did not give estimates around 2013 or 2014 EBITDA.

Continue to Part 2

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