Summit Midstream expands with Tall Oak acquisition

HOUSTON - Summit Midstream Corporation (NYSE: NYSE:SMC), a key player in midstream energy infrastructure, announced its acquisition of Tall Oak Midstream Operating, LLC and its subsidiaries from Tailwater Capital LLC for a combination of cash and equity. This move is set to enhance Summit's scale and financial flexibility while expanding its operational footprint into the Arkoma Basin.

The deal, expected to close in Q4 of 2024, includes a $155 million upfront cash payment and approximately 7.5 million shares of SMC Class B common stock. Additionally, Summit may pay $25 million in contingent consideration through March 31, 2026. At closing, Tailwater Capital will hold around 35% interest in Summit, with plans to appoint four directors to the Summit Board.

The acquisition brings over 440 million cubic feet per day of processing capacity, over 400 miles of pipelines, and over 300,000 dedicated acres with undeveloped locations to Summit's portfolio. This expansion is anticipated to position Summit for future growth, including the potential resumption of dividends and share buybacks in 2025.

Summit's President, CEO, and Chairman, Heath Deneke, expressed enthusiasm for the acquisition, highlighting the strategic fit of Tall Oak Midstream's assets and the team. He noted the transaction's alignment with Summit's growth plan and the expected increase in natural gas demand.

Jason Downie, Co-Founder and Managing Partner at Tailwater Capital, echoed the positive sentiments, emphasizing the complementary nature of the Tall Oak assets to Summit's existing portfolio. Ryan Lewellyn, President and CEO of Tall Oak Midstream III, expressed confidence in the Summit team's ability to capitalize on opportunities in the Arkoma Basin.

The acquisition is set to reduce Summit's pro forma leverage to 3.8x at closing, down from 4.4x, and is valued at approximately 5.6x 2025E asset-level Adjusted EBITDA based on SMC's forecasted range.

Summit Midstream Corporation specializes in developing, owning, and operating midstream energy infrastructure assets in several key unconventional resource basins in the United States. This transaction is based on a press release statement and is expected to close following customary closing conditions, shareholder approval, and regulatory approvals.

In other recent news, Summit Midstream Partners, LP has undergone a series of significant developments. The company has completed a corporate reorganization, merging with Summit Midstream Corporation and transitioning from a master limited partnership to a C corporation. This reorganization, approved by 78.26% of the voting power, aims to simplify the company's structure and potentially lower its long-term cost of capital.

Simultaneously, Summit Midstream Partners launched a tender offer to repurchase up to $215 million of their 8.500% Senior Secured Second Lien Notes due 2026. Additionally, the company has successfully priced an upsized offering of $575 million in senior secured second lien notes due in 2029.

The company has also reported strong Q1 results, with a net income of $132.9 million and adjusted EBITDA of $70.1 million. Following these financial developments, the company divested its Northeast segment assets for approximately $700 million, signaling a shift in focus towards mergers and acquisitions in the Rockies and Permian segments. These recent developments reflect Summit Midstream Partners' strategic focus on operational efficiency and shareholder value.

InvestingPro Insights

Summit Midstream Corporation's strategic acquisition of Tall Oak Midstream aligns well with its current financial position and growth trajectory. According to InvestingPro data, SMC has demonstrated strong revenue growth, with a 21.75% increase in the last twelve months as of Q2 2024. This growth trend supports the company's expansion strategy into the Arkoma Basin.

The acquisition's potential to enhance Summit's financial flexibility is particularly noteworthy given the company's current valuation metrics. InvestingPro data shows that SMC's Price to Book ratio stands at 0.51, suggesting that the stock may be undervalued relative to its assets. This could indicate that the market has not fully priced in the potential benefits of the Tall Oak acquisition.

Furthermore, an InvestingPro Tip highlights that SMC has seen strong revenue growth recently, which aligns with the company's reported 21.75% revenue growth. This trend could be further bolstered by the additional processing capacity and pipeline infrastructure gained through the Tall Oak acquisition.

Another relevant InvestingPro Tip notes that SMC's earnings have been volatile, which may explain the company's current negative P/E ratio of -48.96. However, the acquisition's potential to improve Summit's leverage ratio and contribute to EBITDA growth could help stabilize earnings in the future.

For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for Summit Midstream Corporation, providing deeper insights into the company's financial health and market position.

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