MLPs Wrangling a Herd of M&A Livestock

by Deon Daugherty, Senior Editor

As has long been predicted, mergers and acquisitions (M&A) activity, at least in the master limited partnership (MLP) sector, is finally heating up with about $25 billion worth of M&A announced the third week of July. To help finance all that action, equity deals had to be executed — which finally found a place for the $600 million in equity that’s been weighing on the sector.

As Hinds Howard told Rigzone, the $600 million in new paper had been waiting for new deals because there had been no one to buy into the market and counter that cash.

Howard, vice president and senior financial analyst at CBRE Clarion Securities, stuck with a meaty theme throughout a recent commentary piece, so we’ll continue it here. Last March, he compared the MLP market to the calf scramble at the Houston Livestock Show and Rodeo. More specifically, there was more money than MLP ideas and some stocks drew higher bids than necessary.

Today however, the MLP market more closely resembles those last messy minutes of a hot dog eating contest, where the contenders are trying to squeeze in as much as possible without … ahem … gagging.

“In the calf scramble post, it seemed like the balance had swung too far in the direction of fund flows and MLP prices climbed higher,” Howard wrote. “We’ve now tipped way in the other direction, and visibility into where the next investor base expansion will come from it limited.”

And so, M&A activity in the MLP sector is clearly ramping up. Among the highlights:

  • MPLX LP and MarkWest Energy are merging in a $20 billion deal in which MarkWest will be a wholly owned subsidiary of MPLX
  • Genesis Energy is buying Enterprise Products Partners for $1.5 billion
  • Sunoco LP announced it would acquire 100 percent of Susser Holdings Corp. for $1.94 billion
  • Arc Logistics intends to buy UET Midstream LLC from two private companies

Howard said, “The longer the pain lasts for MLPS, the more likely M&A is to happen, because smaller MLP management teams would rather join other MLPs to gain scale and/or larger MLPs to gain access to capital than go it alone.”

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