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Enterprise acquires Navitas Midstream for $3.25 billion in cash

A Warburg Pincus LLC affiliate has approved Enterprise Products Partners' bid to acquire Navitas Midstream Partners, LLC, for $3.25 billion in cash. The deal is expected to close by the first quarter of 2022 and will be debt-free. In the Permian's Midland Basin, Navitas provides natural gas gathering, treatment, and processing services.

According to Tudor, Pickering, Holt & Co. (TPH), Enterprise's acquisition agreement with this privately held company came as a surprise, given its recent capital discussions and preference for downstream businesses. Since portfolios are relatively inexpensive, the implied DCF yield is only marginally higher than standalone EPD metrics, and increasing exposure to wellheads without a clear readthrough to NGL logistics is difficult to reconcile with the messaged strategy. However, little attention was paid to incremental downstream volumes to EPD's pipelines, fractionation, and exports, which will be crucial to justify expanding wellhead exposure.

Meanwhile, Navitas Midstream itself has approximately 1,750 miles of pipeline in the Midland Basin and is working towards finishing its Leiker cryogenic natural gas processing plant in the first quarter of 2022.

In the heart of the Midland Basin, the Navitas management team has produced a premier system, according to Enterprise Co-CEO A. J. Teague. And this acquisition comes in handy, giving Enterprise access to the Midland Basin, as the company lacks natural gas or natural gas liquids infrastructure apart from downstream pipelines in the region.

Navitas was formed in 2014 with the assistance of Warburg Pincus and an experienced management team in The Woodlands, Texas. Before being sold to Kinder Morgan in 2013, Copano Energy LLC was built into a $5 billion enterprise by R. Bruce Northcutt, Bryan Neskora, and Jim Wade. And now, according to top management, the company is able to provide critical infrastructure to meet the needs of Midland Basin producers.

Today over 40 independent and publicly owned producers are connected to the Navitas system through long-term contracts. Furthermore, the system depends on fee-based contracts to generate additional revenues. With up to 10,000 drilling locations or 15 years of drilling inventory on the dedicated acreage, Navitas Midstream is positioned to provide visibility into future growth.

And as a result of the Navitas acquisition, Enterprise estimates that distributable cash flow accretion will be in the range of $0.18 to $0.22 per unit in 2023, which will be Enterprise's first full year of ownership. This investment should also support additional capital returns to their limited partners through distribution growth and buybacks of common units.

According to Warburg Managing Director John Rowan, this acquisition represents the largest private gas gathering and processing activity in the world. A combination of cash on hand and borrowings will be used to fund the acquisition, in addition to the partnership's existing commercial paper and bank credit facilities.

Merrill Lynch serves as Navitas' financial adviser, while Kirkland & Ellis occupies the role of its legal adviser.

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