BPL: What does Buckeye’s Buyout Mean for MLPs and Midstream?

Buckeye Partners (BPL) announced this morning that it has agreed to be acquired by IFM Investors for $41.50 per unit in an all-cash deal expected to close in the fourth quarter of 2019 subject to customary closing conditions. The proposed acquisition price represents a 27.5% premium to BPL’s closing price yesterday. The $10.3-billion enterprise value (EV) of the transaction represents a 10.75x multiple to BPL’s consensus 2020 EBITDA estimate of $957.8 million.

What are the implications for MLPs and midstream?
Today’s transaction announcement has positive read-through for the rest of the MLP and midstream space as it highlights the midstream value proposition. Last week, we discussed private equity’s continued involvement in midstream and the disconnect between private equity valuation of midstream assets relative to public markets. The BPL transaction further underscores that disconnect and the attractiveness of midstream assets to private equity. Additionally, it provides credibility to the idea that private equity involvement may help keep public equity market valuations honest to some extent. For context, BPL was trading at a ten-year low on December 24, 2018.

While the transaction multiple based on forward EV/EBITDA is not as healthy as some asset-level private equity deals done at 13x or more discussed in our piece from last week, the 27.5% equity premium is significant. Admittedly, Buckeye had seen challenges in recent quarters, undertaking a strategic review that resulted in a distribution cut and asset sales to shore up its financial position. Furthermore, the current backwardation in the Brent and WTI oil curves can be a headwind for the storage assets in BPL’s portfolio (read more). That said, the 10.75x multiple represents a premium to the weighted average forward EV/EBITDA multiple for the constituents of the Alerian MLP Infrastructure Index (AMZI), which were trading at 9.9x 2020 EBITDA as of yesterday’s close.

In our 2019 outlook video, we discussed a major private equity transaction as a potential catalyst for the MLP and midstream space. Today’s transaction could serve as that catalyst, though admittedly there are many other distractions given recent broader market volatility on the back of US-China trade concerns and other M&A-related activity within energy. Overall, we believe the proposed transaction has positive read-through for the rest of the MLP and midstream space.