American Midstream Partners LP acquired Costar Midstream LLC from Energy Spectrum Partners VI LP and Costar management for about $470 million. Costar is a gathering and processing company with most of its gathering, processing, fractionation and condensate treating and stabilization assets in East Texas and the Permian Basin. The company also has a crude gathering system project underway in the Bakken play.
American Midstream funded the acquisition with 6.9 million American Midstream common units issued to Energy Spectrum and Costar senior management. The common units are subject to customary lock-up provisions. The transaction was also funded with $272 million of cash from borrowings under American Midstream’s revolving credit facility and proceeds from its August private placement of common units. The transaction closed Oct. 14. Total acquisition consideration for Costar equates to an adjusted EBITDA of about 10.5X for 2015.
American Midstream plans to invest from $70 million to $80 million over the next 12 to 18 months to finish current Costar development projects. Upon completion of the projects, the adjusted EBITDA total investment multiple is expected to improve to about 8.0X when the projects reach an annualized cash flow run-rate in 2016.
The senior management team of Costar will join American Midstream to finish the existing Costar development projects, identify additional growth opportunities for the Costar assets and join with American Midstream’s existing corporate and business development teams to drive long-term operating scale and diversification.
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