UBS Sees 4 Companies as Potential MLP Acquisition Targets

By Lee Jackson Published Sep 23, 11:50AM EDT

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Once a major company with the size, depth and, most of all, deep pockets like Kinder Morgan Inc. (NYSE: KMI) plunges in and makes a huge deal come together with pending acquisitions, all you need is a quote from the CEO Rich Kinder like “Fertile field to do a little grazing in” and you have sparked a wave of merger and acquisition (M&A) speculation in the energy master limited partnership (MLP) arena.

A new report from the MLP team at UBS says that the analysts expect the healthy M&A atmosphere to continue. By their estimation, 67 M&A deals have so far been announced and/or completed versus 91 in 2013. The key statistic is the dollar amount of the transactions is already 44% above last year’s numbers. While Kinder Morgan’s deal was a consolidation of its existing businesses, the UBS team feels that other top companies will be looking to add-on companies that can complement existing business and supply needed growth.

Based on a wide variety of metrics and a framework of the current landscape, UBS has four MLPs that could be in the running to be acquired.

Crestwood Midstream Partners L.P. (NYSE: CMLP) hits the UBS screens as a potential candidate. The company is engaged in the gathering, processing, treating, compression, storage and transportation of natural gas; storage, transportation and terminalling of natural gas liquids; and gathering, storage and terminalling of crude oil. The company announced earlier this year a further expansion of its Willow Lake Project, located in the Permian Delaware Basin, which includes the conversion of a portion of its Las Animas natural gas gathering system into rich gas service and the construction of an initial cryogenic natural gas processing plant.

Investors are paid a large 7.25% distribution (remember that MLP distributions may include return of principal). The Thomson/First Call consensus price target is at $24.23. The stock closed Monday at $22.60 a share.

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NGL Energy Partners L.P. (NYSE: NGL) is a newer name to the MLP field, having completed the company’s IPO in 2011. NGL owns and operates a vertically integrated energy organization with five primary businesses: crude oil logistics, water solutions, NGL logistics, refined products/renewables and retail propane. With such a wide variety of product and service silos, the company may be an easy bolt-on deal for a larger MLP looking to increase the business lines.

Investors in NGL are paid a very solid 5.55% distribution. The consensus price target is $46.58. Shares closed Monday at $42.37.

NuStar Energy L.P. (NYSE: NS) is a stock flirting with 52-week highs and defying sellers. NuStar and other companies are building docks, storage tanks and other facilities in Corpus Christi to take advantage of the oil boom in the Eagle Ford shale formation, which is about 100 miles away. The port shipped out 350,000 barrels of crude a day last year, up from under 10,000 at the start of 2012, according to port data. For companies looking to add on in this silo, NuStar may be a perfect fit.

NuStar investors are paid a 6.7% distribution. The consensus price target is $66.78, and the stock closed trading on Monday at $65.35.

SemGroup Corp. (NYSE: SEMG) is a midstream service company providing the energy industry the means to move products from the wellhead to the wholesale marketplace. SemGroup provides diversified services for end-users and consumers of crude oil, natural gas, natural gas liquids, refined products and asphalt. Services include purchasing, selling, processing, transporting, terminalling and storing energy. With its solid expansion over the past two years, a larger company may find this a perfect add-on to complement existing services.

Investors are paid a small 1.27% distribution. The consensus price target for the stock, which has had an outstanding year, is $95.80. Shares closed Monday at $84.51.

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While there is absolutely no guarantee that any of the companies will be acquired, the UBS overall view of how they could be meshed into another companies’ existing services makes good sense. Plus, for investors looking for top MLP stocks to own, even if they are not acquired, they are solid investment choices.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.