Martin Midstream Partners LP (MMLP), Kilgore, Texas, announced on Oct. 24 that it has reached an agreement with Martin Resource Management Corp. (MRMC) to acquire Martin Transport Inc. (MTI) for $135 million, with $125 million of this cash and $10 million debt. There is also a potential additional $10 million earn-out based on a performance threshold.
MTI, incorporated in 1988, transports molten sulfur, sulfuric acid, resins, and petroleum products, including crude oil, lube oil, solvents, and asphalt, as well as pressurized liquids such as propane, butane, LPG, and LNG. MTI owns 23 terminals located throughout the Gulf Coast and Midwest, and as of September 2018 had 561 trucks and 1,307 trailers. MRMC 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.
MMLP noted the acceleration in tank truck demand growth over the past 18 months. It said the purchase integrates with core businesses to ensure customer needs are met in a tight transportation market. MMLP was 22 percent of MTI revenue in 2017, and the general partner was 7 percent.
In total, MTI’s top 10 customers, a significant portion of whom are investment grade, make up 75 percent of revenues. MMLP said MTI had been recapitalized between 2012-16 and it will reap the benefits over the next few years with a low mileage fleet of trucks and trailers.
“Based on operational estimates and current transportation market conditions, this acquisition from our general partner will provide strategic long-term growth for the partnership,” said Ruben Martin, Martin Midstream GP LLC president and CEO. “In the first twelve 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. This will drive our estimated distribution coverage ratio to approximately 1.20 times by year-end 2019, which forms the basis for management’s continued support of the current distribution level.
“Further, due to continued rising line haul rates combined with MTI’s available truck capacity, we estimate net income, EBITDA, and distributable cash flow attributable to MTI to grow to approximately $17.0 million, $33.2 million, and $20.9 million, respectively, for the year of 2022. In addition, this drop down will provide stability in our quarterly cash flows to offset the seasonal nature of our fertilizer and butane businesses. We expect this transaction to close in January of 2019.”
MMLP said the price paid for MTI 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. The acquisition will be funded from MMLP’s revolving credit facility, allowing it to redeploy much of the $193.7 million in net proceeds received when it sold its interest in the West Texas LPG Pipeline LP (WTLPG) on July 31, 2018.
The company said despite redeploying capital of only 70 percent 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.