There was a lot of grousing Tuesday and Wednesday at the Midstream Gas Assets Acquisition & Divestiture Summit in Houston. It wasn't about the hotel (the lovely St. Regis), the temperature in the room (which was arctic) or the speakers (who were excellent, from master limited partnership CEOs to corporate development types to lenders to private equity firms to investment bankers). The complaints were mostly about the prices energy-related midstream assets -- pipelines, processing plants, storage facilities and the like -- were fetching, in part because of high oil prices but also because MLPs can pay a little more due to their tax-lite structures and their need to grow to feed distributions to their hungry unit holders. "We participated in auctions for storage, and we just can't get there," lamented Christopher Helms, president of Nisource Inc.'s gas transmission and storage unit. "Don't expect us to be at the table. We'll wait for projects with flawed assumptions to come back to the market."
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Jason Downie, a partner at HM Capital Partners, has faced the same situation: "We've bid on assets, and others have prevailed at a higher price. We're not able to compete at the 10-plus level and finance them."
So it may have come as a relief to some that prices for these assets are coming down. "We're going to see some good values out there," said Jonathan Nathanson, who sits on the board of Boardwalk Pipeline Partners LP.
Why? Well, values have to come down from their lofty perches -- 13 times Ebitda, versus 6 to 8 just a few years ago -- now that the stock market is down and debt markets have tightened. "The values of several MLPs have come off significantly, so their ability to pay high multiples is questionable," said Frank Murphy, a managing director at Wachovia Corp. who specializes in such deals. "For deals to get done, valuations will have to come down given the financing situation."
That may be difficult with the supply of deals tight and sellers expecting high multiples, noted Raymond Strong, a managing director at Goldman, Sachs & Co. "We told one client, 'We can get you 13 times Ebitda,' but they wanted 18. We haven't seen that [asset] trade," he said. Several bankers expect stronger MLPs to buy weaker ones, which has only happened in a handful of cases over the last eight years.
Said Abhay Pande, a managing director at Citigroup Inc.: "It may be hopeful banker talk, but I think consolidation is more likely now than ever." - Claire Poole
