In conjunction with the transaction, ArcLight Capital Partners (ArcLight), the sponsor of both American Midstream and JP Energy, will combine the general partners of the two companies.
Upon closing, the combined entity is expected to generate pro-forma adjusted EBITDA of approximately $185 million, assuming 2016 midpoint guidance from each respective company and including run-rate synergies of approximately $10 million.
The merger of American Midstream and JP Energy will create a midstream business operating in North American basins, including the Permian, Gulf of Mexico, Eagle Ford and Bakken. The combined partnership will have an estimated enterprise value of $2 billion and its unit holders are expected to benefit from significantly improved scale and financial flexibility to invest in growth projects, third-party acquisitions and potential drop downs from ArcLight, while establishing a path to mid-single-digit distribution growth over the long-term.
“The merger elevates and reshapes our two businesses into a new platform that we expect will allow for higher growth, new business opportunities and a stronger financial position than either company could achieve separately,” said Lynn L. Bourdon, III, CEO of American Midstream.
“This transformational combination is the next logical step in expanding services from the wellhead to the end user market. We will begin to experience the impact of our value chain growth strategy by offering customers a more competitive suite of services that enables us to capture incremental fee opportunities that maximize returns to unitholders. We look forward to creating further alignment with ArcLight as we execute on our long-term growth strategy,” Bourdon said.
Upon completion of the transaction, the combined partnership will own and operate diverse midstream infrastructure representing more than 3,100 miles of gathering and transportation pipeline, and over 2.5 Bcf/d of transportation capacity.
The merger also includes six processing plants with 400 MMcf/d of processing capacity, three fractionation facilities with 20,000 b/d of capacity, and 13.9% interest of an offshore floating production facility (FPS) in the deep-water Gulf of Mexico.
The newly merged company will own over 6 million bbl of above-ground liquids storage capacity and the third-largest wholesale propane business in the U.S.
The strategic combination is expected to build a broader footprint, enhance competitive position and profitability, both companies said. It will expand operations across natural gas, refined products, crude oil and NGLs with opportunity to capture new customers and demand.
The new company is expected to increase platform for potential third-party acquisitions due to expanded operations and scale, potential for drop downs and partnership opportunities with ArcLight, and growth capital availability.
The combined company is expected to substantially enhance access to sources of capital given increased scale as well as create a path to pro forma liquidity over $250 million, with low pro forma leverage of 3.8x and improved ability to pursue acquisitions.
Under the terms of the merger agreement, American Midstream common units will be issued to JP Energy public unit holders at an exchange ratio of 0.5775:1 and to affiliates of ArcLight that hold common units and subordinated units at an exchange ratio of 0.5225:1, resulting in a blended average exchange ratio of 0.55:1.
Consideration received by JP Energy public unit holders is structured as a unit-for-unit exchange valued at $8.63 per common unit based on American Midstream’s closing unit price as of Oct. 21, 2016, representing a 14.5% premium to the closing price of JP Energy’s common units of $7.54 on Oct. 21, 2016 and a 14.2% premium to the volume weighted average closing price of JP Energy common units for the last 20 trading days ending Oct. 21, 2016.
The general partner of JP Energy will be merged with the general partner of American Midstream, with the general partner of American Midstream continuing in its current form. ArcLight affiliates have also agreed to provide additional support to the combined partnership to achieve average annual distributable cash flow per unit accretion of approximately 5% for 2017 and 2018. An affiliate of ArcLight will also support the merger through reimbursement of JP Energy’s transaction and transition costs.
The transaction is expected to close in late 2016 or early 2017. Until the closing of the proposed merger, American Midstream and JP Energy will continue to operate independently.
The combined partnership will be headquartered in Houston, Texas. The Board of Directors of the General Partner of American Midstream remains unchanged.
Lynn L. Bourdon, III will serve as chairman and CEO and Eric T. Kalamaras will serve as chief financial officer of the combined partnership.
