Five private equity funds are slugging it out with two of the country’s biggest propane suppliers in the $400-million-plus auction of Gibson Energy Inc.’s propane business, the latest example of institutional investors' love affair with all things infrastructure.photos.com
Five private equity funds are slugging it out with two of the country's biggest propane suppliers in the $400-million-plus auction of Gibson Energy Inc.'s propane business, the latest example of institutional investors' love affair with all things infrastructure.
Gibson, a Calgary-based energy-infrastructure company, announced plans to sell Western Canada's second-largest propane supplier in the summer and said it was taking "final" bids in December, with an eye to revealing a buyer early this year. Sources say two industry rivals made bids last month: Superior Plus Corp., which owns Canada's largest propane distributors, and Parkland Fuel Corp., which is aggressively building a national fuel-distribution business.
Normally, strategic buyers such as Superior Plus and Parkland dominate these corporate auctions, able to pay more than outsiders due to the significant cost savings that come with taking out a rival. But these are not normal times when it comes to infrastructure assets, with their dependable, healthy cash flows.
There are a number of deep-pocketed private equity funds roaming the energy sector in search of infrastructure. Players include the largest public-sector pension plans, such as the Canada Pension Plan Investment Board, and the biggest U.S., European and Canadian PE companies. Several of these funds are interested in Gibson's propane division as a starting point for building a North American business.
Between PE funds and strategic buyers, seven bidders are taking a run at the Gibson subsidiary, according to sources familiar with the sales process, which is being run by RBC Dominion Securities.
A spokesperson at Gibson declined to comment on the auction process, as did representatives of Superior Plus and Parkland.
In a recent report on Gibson, analyst Dirk Lever at AltaCorp Capital said: "We estimate the division could be sold for approximately $400-million, 7.5x our forecast 2017 propane division EBITDA." That could turn out to be a conservative forecast if a heated auction drives up the valuation.
Potential buyers are vying for a Gibson division that operates under the brand-name Canwest Propane and delivers 300 million litres of fuel annually to oil and gas, industrial and residential customers, along with storage facilities in Ontario, B.C., Montana and Washington State. Gibson has owned Canwest since 1988 and through the first nine months of the year, the pro-pane business earned a $21-million profit on sales of $108-million; Gibson's total sales in the same period were $3.3-billion.
Toronto-based Superior Plus already owns Canada's largest propane-distribution business and one source close to the company said part of its pitch to Gibson last month "was to assure the seller it has competition lawyers who can get this through regulators."
Superior Plus is on the acquisition trial: It paid down debt last year by selling a division that makes construction products for $428-million; it bought a small Ontario propane-distribution company last summer for $8-million and made an unsuccessful offer for chemical-maker Canexus Corp.
Parkland, based in Red Deer, Alta., is also using acquisitions to bulk up, agreeing to pay $965-million in August to acquire approximately 580 Canadian gas stations and fuel-supplier sites from Alimentation Couche-Tard Inc. In 2013, Parkland announced plans to build a national propane supplier by acquiring a company called Sparlings Propane, the second-largest player in the Ontario market.
Infrastructure assets are up for sale at a number of other oil and gas companies: MEG Energy is taking offers on its 50-per-cent interest in a pipeline and Canadian Natural Resources recently raised $528-million by selling a pipeline holding to Inter Pipeline.
Strategic buyers are always going to have the upper hand in these auctions. But the strong interest in Gibson's propane business from private-equity bidders speaks to a new dynamic in the oil patch, with asset auctions drawing more bidders and higher valuations than they have in the past.