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Martin Midstream acquiring Martin Transport

Monday, November 5, 2018

 

 

 

Martin Midstream will acquire Martin Transport, Inc., for $135 million plus a potential additional $10 million earn-out.

 

 

Martin Midstream Partners L.P. has announced its financial results for the quarter ended September 30, 2018.

Martin Lubricants, a Martin Midstream subsidiary, operates a petroleum product blending and packaging plant in Smackover.

Ruben Martin, president and chief executive officer of Martin Midstream GP LLC, the general partner of the Partnership said, “I am excited to announce the partnership has reached an agreement with Martin Resource Management Corporation to acquire Martin Transport, Inc., for $135 million plus a potential additional $10 million earn-out based on a performance threshold.”

The price reflects an EBITDA multiple between 5.7 times and 6.0 times based on MTI's forecasted 2019 net income of $9.3 million and EBITDA of $23.6 million. This acquisition will be funded from the partnership’s revolving credit facility allowing it to redeploy much of the $193.7 million in net proceeds received when we sold our interest in the West Texas LPG Pipeline Limited Partnership on July 31, 2018.

Despite redeploying capital of only 70% of the net proceeds received for the WTLPG interest, the acquisition is estimated to generate roughly $16 million of additional incremental EBITDA in 2019 over the average historical cash flows received from WTLPG.

MTI transports petroleum products, liquid petroleum gas, chemicals, sulfur and other products, as well as owns 23 terminals located throughout the Gulf Coast and Midwest. RMC has owned and operated MTI or its predecessor for over 40 years and is integral to MMLP’s routine movements of sulfur and NGL’s.

“Based on operational estimates and current transportation market conditions, this acquisition from our general partner will provide strategic long-term growth for the partnership,” Rubin Martin said.

In the first 12 months of operation, the acquisition is expected to contribute approximately $23.6 million and $14.7 million of EBITDA and distributable cash flow, respectively, to the partnership.

“As expected during the third quarter, our debt level rose due to the seasonal butane inventory build in our Natural Gas Services segment. Anticipating this annual occurrence, the Partnership amended its revolving credit facility in February of 2018 to include an inventory financing sublimit tranche related to eligible inventory volumes that are under sales or swap contracts when calculating consolidated funded debt,” Martin said.

“Accordingly, the partnership’s calculated leverage ratio of 4.29 times includes a $74.0 million reduction of consolidated funded debt under this provision. Further, the applicable interest rate under our credit facility is reduced 25 basis points due to obtaining a leverage ratio under 4.50 times.

“Looking ahead to the fourth quarter, our butane optimization business will begin capturing cash flows from forward sales, the marine transportation division looks to continue improved performance relative to guidance, and the beginning of seasonal demand for fertilizer products should all provide cash flow strength. Added together with anticipated lower than forecasted maintenance capital expenditures, our distribution coverage ratio will rebound, as it historically does, in the fourth quarter. However, due to market weakness that has affected fertilizer margins throughout 2018, at this time we are lowering our estimate to approximately 0.90 times at year end 2018,” Martin said.

The partnership had a net loss from continuing operations for the third quarter 2018 of $9.7 million, a loss of $0.24 per limited partner unit. The partnership had a net loss from continuing operations for the third quarter 2017 of $17.0 million, a loss of $0.44 per limited partner unit. The partnership's adjusted EBITDA from continuing operations for the third quarter 2018 was $25.4 million compared to adjusted EBITDA from continuing operations for the third quarter 2017 of $25.5 million.

The partnership had a net loss from continuing operations for the nine months ended September 30, 2018 of $6.7 million, a loss of $0.17 per limited partner unit. The Partnership had a net loss from continuing operations for the nine months ended September 30, 2017 of $4.1 million, a loss of $0.10 per limited partner unit. The Partnership's adjusted EBITDA from continuing operations for the nine months ended September 30, 2018 was $96.8 million compared to adjusted EBITDA from continuing operations for the nine months ended September 30, 2017 of $102.9 million.