Natural gas compression services provider USA Compression Partners announced Tuesday that it was acquiring Energy Transfer Partners LP’s compression unit CDM Resource Management for around $1.8 billion, doubling the size of its fleet. And the complicated deal required a lot of lawyers, primarily in Texas.
Vinson & Elkins advised Austin, Texas-based USA Compression with a team led by partners Milam Newby in Austin and Ramey Layne in Houston with assistance from senior associate Doug Lionberger and associates Aaron Carpenter and Raleigh Wolfe.
Also advising from V&E were partners Shane Tucker and Brian Bloom, senior associate Heather Johnson and associate Christen Romero on executive compensation/benefits; partners Ryan Carney, Glen Rosenbaum and Wendy Salinas, senior associate Laura Gieseke and associates Curt Wimberly and Jen Maul on tax; partner Sean Becker and senior associate Christie Alcala on labor/employment; counsel Dan Spelkin and associates Connor Long, Jonathan Sapp, Jane Ehinmoro and David Lassetter on corporate issues; and partner Devika Kornbacher and associate Sean Hill on intellectual property.
V&E had help on finance from its New York office and tax, regulatory and environmental issues from its Washington, D.C. office.
Newby counseled USA Compression before on its $187 million acquisition of compression assets from S&R Compression. And Layne has handled countless midstream transactions, recently advising Noble Energy on its $765 million sale of the holding company that owns a 50 percent interest in Cone Gathering and a 33.5 percent ownership in Cone Midstream Partners to a portfolio company of Quantum Energy Partners.
Locke Lord represented USA Compression Holdings with a team that included partners Joe Perillo, Michael Blankenship and Bill Swanstrom, all of Houston, with support from its New York office.
Perillo knows his way around a midstream deal: In 2015 he was part of a group that provided counsel to Enterprise Products Operating on its $2.15 billion purchase of the Eagle Ford Shale midstream business of Pioneer Natural Resources and Reliance Holding USA. He’s advised other energy outfits on dealmaking, including O-Tex Holdings, Epic Midstream, Premier Oilfield Laboratories and White Deer Energy.
Richards Layton & Finger acted as legal counsel to USA Compression Partners’ conflicts committee.
USA Compression Partners’ general counsel is Christopher Porter, who gained the top legal job in January of last year. Before that he was associate general counsel. From 2010 through 2015, the George Washington University-trained Porter practiced corporate and securities law at Andrews Kurth.
Latham & Watkins represented Dallas-based Energy Transfer Partners and Energy Transfer Equity in the transaction with a corporate deal team led by partners Debbie Yee and Bill Finnegan that included associates Thomas Verity, Chad Smith, Daniel Harrist, Taylor Anthony, Caroline Ellerbe and Max Fin, all of Houston.
Also weighing in were partner Tim Fenn with associate Bryant Lee on tax matters; partner Joel Mack on environmental matters; and partner Craig Kornreich, counsel Pamela Kellet and associate Bryce Kaufman on finance matters. All are in Houston. The firm also tapped its Washington, D.C., Los Angeles, San Francisco offices for help on environmental, benefits/compensation and antitrust issues.
Yee and Finnegan have worked on several Energy Transfer transactions, including debt and equity offerings totaling more than $16.6 billion and Energy Transfer Partners’ $18 billion acquisition of Regency Energy Partners and $9.2 billion acquisition of Southern Union.
Potter Anderson & Corroon counseled Energy Transfer Partners’ conflicts committee.
Energy Transfer Partners’ general counsel is Tom Mason, who joined in 2007. The University of Texas-educated lawyer previously was a partner at Vinson & Elkins in Houston, where he handled initial public offerings and follow-on offerings of debt and equity for master limited partnerships, public offerings of debt and equity for corporations and mergers and acquisitions for energy companies.
Kirkland & Ellis’ Houston office also got a piece of the deal, advising EIG Global Energy Partners on a $500 million investment into USA Compression Partners to help it finance the transaction. The Kirkland team included corporate partners John Pitts and Samuel Peca; capital markets partners Julian Seiguer and Justin Hoffman; and debt finance partner Mary Kogut.
Pitts has counseled EIG before, including its $500 million preferred equity commitment to Rice Midstream Holdings, its $1 billion investment in Breitburn Energy Partners and EIG’s sale of oil and gas interests in Oklahoma. Peca was promoted to partner this past fall, having joined this past summer from Weil, Gotshal & Manges, where he was an associate for five years.
The deal’s financial advisers included Evercore for USA Compression Holdings, Jefferies for USA Compression Partners’ conflicts committee, Barclays for Energy Transfer Equity and Energy Transfer Partners and Tudor, Pickering Holt for Energy Transfer Partners’ conflicts committee.
Analysts thought the transaction came at a premium for USA Compression when compared with the value of its existing horsepower. They still think the deal is worth it, as it provides USA Compression with higher-quality assets (and within spitting distance of Archrock in terms of size) and could benefit the compression industry as a whole as it becomes less fragmented and generates more pricing power.
Energy Transfer Partners also is expected to be helped by the transaction, which will give it $1.225 billion in cash to pay down its $30 billion debt load – and reduce the possibility that it might have to cut its dividend to investors.
The transaction involves a lot of parties and requires a lot of steps—as is common with many deals involving master limited partnerships, which have proliferated over the last 10 years due to their tax benefits and high distributions for investors.
Energy Transfer Partners is contributing the CDM business to USA Compression for $1.225 billion in cash, 19.2 million of its common units and 6.4 million of its Class B units, with the shares representing around $447 million in value. The cash portion of the deal will be funded with $500 million in perpetual preferred units and $725 million in debt financing.
Energy Transfer Partners’ parent, Energy Transfer Equity, also is acquiring all of the equity interests in USA Compression’s parent, USA Compression Partners GP, which is owned in part by private equity firms Carlyle and Riverstone, as well as 12.5 million USA Compression common units – recently valued at $218 million – in exchange for $250 million in cash.
Once the GP ownership is transferred, Energy Transfer Equity will convert the GP into a non-economic GP interest and cancel the incentive distribution rights in exchange for 8 million USA Compression common units.
The deal is expected to close in the first half of the year.