American Midstream and JP Energy Partner to merge

American Midstream Partners LP and JP Energy Partners LP are merging in a deal that will create a combined midstream platform valued at $2 billion. ArcLight Capital Partners LLC, the sponsor of both American Midstream and JP Energy, will combine the GPs of the two companies. Bank of America Merrill Lynch acted as financial advisor to American Midstream and Simmons & Company International, Energy Specialists of Piper Jaffray acted as financial advisor to the Conflicts Committee of American Midstream. Locke Lord LLP was legal counsel to American Midstream and Thompson & Knight LLP was legal counsel to the Conflicts Committee of American Midstream. BMO Capital Markets provided financial advice to JP Energy and Latham & Watkins acted as legal counsel to JP Energy. Andrews Kurth LLP acted as legal advisor to ArcLight.

PRESS RELEASE
October 24, 2016 06:00 AM Eastern Daylight Time
HOUSTON–(BUSINESS WIRE)–American Midstream Partners, LP (NYSE: AMID) (“American Midstream”) and JP Energy Partners LP (NYSE: JPEP) (“JP Energy”) announced today their execution of a merger agreement to create a combined midstream platform. American Midstream will acquire 100% of JP Energy in a unit-for-unit merger which is anticipated to have minimal, if any, tax recognition for the unitholders. In conjunction with the transaction, ArcLight Capital Partners, LLC (“ArcLight”), the sponsor of both American Midstream and JP Energy, will combine the general partners of the two companies. Upon closing, the combined entity is expected to generate pro-forma Adjusted EBITDA of approximately $185 million, assuming 2016 mid-point guidance from each respective company and including run-rate synergies of approximately $10 million.
The merger of American Midstream and JP Energy will create a diversified midstream business operating in leading North American basins, including the Permian, Gulf of Mexico, Eagle Ford and Bakken. The combined partnership will have an estimated enterprise value of $2 billion and its unitholders are expected to benefit from significantly improved scale and financial flexibility to invest in growth projects, third-party acquisitions and potential drop downs from ArcLight, while establishing a path to mid-single digit distribution growth over the long-term.
“The merger elevates and reshapes our two businesses into a new platform that we expect will allow for higher growth, new business opportunities and a stronger financial position than either company could achieve separately,” said Lynn L. Bourdon, III, Chairman, President and Chief Executive Officer of American Midstream. “This transformational combination is the next logical step in expanding services from the wellhead to the end user market. We will begin to experience the impact of our value chain growth strategy by offering customers a more competitive suite of services that enables us to capture incremental fee opportunities that maximize returns to unitholders. We look forward to creating further alignment with ArcLight as we execute on our long-term growth strategy.”
“We believe the merger between American Midstream and JP Energy makes a tremendous amount of sense, offering all stakeholders a solidified financial profile on a stronger, more diversified platform with multiple avenues for growth,” added Dan Revers, Managing Partner of ArcLight. “Through the combination, ArcLight can concentrate its financial and strategic support and work even more closely with Lynn and his team to continue the growth of American Midstream.”
“This merger provides the opportunity for JP Energy unitholders, customers and employees to participate in the creation of a platform of diversified assets with strong growth prospects. The exchange ratio premium and future growth prospects provide significant investment value to our unitholders,” said J. Patrick Barley, President and Chief Executive Officer. “Lynn’s extensive experience throughout the energy value chain as well as ArcLight’s continued support of the combined enterprise will help ensure the future success of American Midstream.”
COMBINED ENTITY
Upon completion of the transaction, the combined partnership will own and operate diverse midstream infrastructure representing:
• More than 3,100 miles of gathering and transportation pipeline,
• Over 2.5 Bcf/d of transportation capacity,
• Six processing plants with 400 MMcf/d of processing capacity,
• Three fractionation facilities with 20,000 bpd of capacity,
• 13.9% interest of offshore floating production facility (FPS) in the deep-water Gulf of Mexico,
• Over six million barrels of above-ground liquids storage capacity, and
• The third largest wholesale propane business in the U.S.
STRATEGIC RATIONALE
The resulting benefits of the transaction are meaningful. The strategic combination is expected to have the following benefits:
• Increase Scale and Diversification: Build a broader footprint, enhance competitive position and profitability
• Expand Service Offering: Expand operations across natural gas, refined products, crude oil and NGLs with opportunity to capture new customers and demand
• Accelerate Growth: Increase platform for potential third-party acquisitions due to expanded operations and scale, potential for drop downs and partnership opportunities with ArcLight, and growth capital availability
• Add Complementary Assets: Leverage combined positions in the Permian; crude oil, liquids logistics, and terminals; in addition to approximately $10 million of run-rate synergies
• Improve Financial Position: Substantially enhance access to sources of capital given increased scale; creates a path to pro forma liquidity over $250 million, with low pro forma leverage of 3.8x and improved ability to pursue acquisitions
• Fuel Long-Term Distribution Growth: Establish path to mid-single digit distribution growth over the long-term
KEY MERGER AGREEMENT TERMS
Under the terms of the Merger Agreement, American Midstream common units will be issued to JP Energy public unitholders at an exchange ratio of 0.5775:1 and to affiliates of ArcLight that hold common units and subordinated units at an exchange ratio of 0.5225:1, resulting in a blended average exchange ratio of 0.55:1. Consideration received by JP Energy public unitholders is structured as a unit-for-unit exchange valued at $8.63 per common unit based on American Midstream’s closing unit price as of October 21, 2016, representing a 14.5% premium to the closing price of JP Energy’s common units of $7.54 on October 21, 2016 and a 14.2% premium to the volume weighted average closing price of JP Energy common units for the last 20 trading days ending October 21, 2016.
The general partner of JP Energy will be merged with the general partner of American Midstream, with the general partner of American Midstream continuing in its current form. ArcLight affiliates have also agreed to provide additional support to the combined partnership to achieve average annual distributable cash flow per unit accretion of approximately 5% for 2017 and 2018. An affiliate of ArcLight will also support the merger through reimbursement of JP Energy’s transaction and transition costs.
The merger terms were negotiated, reviewed, and approved by the Boards of Directors of both American Midstream and JP Energy and the Conflicts Committee of American Midstream, which is composed entirely of independent directors. Both Boards of Directors and the Conflicts Committee have unanimously approved the proposed transaction. As part of their evaluation process, the Conflicts Committee retained independent legal and financial advisors and received a fairness opinion from its financial advisor.
The transaction is expected to close in late 2016 or early 2017, subject to customary closing conditions, including effectiveness of a registration statement on Form S-4 related to the issuance of new American Midstream units to the JP Energy unitholders, approval by a majority of JP Energy public unitholders and regulatory approvals. Until the closing of the proposed merger, American Midstream and JP Energy will continue to operate independently.
HEADQUARTERS AND MANAGEMENT
The combined partnership will be headquartered in Houston, Texas. The Board of Directors of the General Partner of American Midstream remains unchanged.
Lynn L. Bourdon, III will serve as Chairman and Chief Executive Officer and Eric T. Kalamaras will serve as Chief Financial Officer of the combined Partnership.
ADVISORS
Bank of America Merrill Lynch acted as financial advisor to American Midstream and Simmons & Company International, Energy Specialists of Piper Jaffray acted as financial advisor to the Conflicts Committee of American Midstream. Locke Lord LLP acted as legal counsel to American Midstream and Thompson & Knight LLP acted as legal counsel to the Conflicts Committee of American Midstream. BMO Capital Markets acted as financial advisor to JP Energy and Latham & Watkins acted as legal counsel to JP Energy. Andrews Kurth LLP acted as legal advisor to ArcLight.