In much the same way parents encourage their children to succeed, recent MLP merger and acquisition (M&A) activity has been driven by general partners (GPs) trying to create value, either at the GP level, the limited partner (LP) level, or both. During June, three transformative transactions were announced that highlighted this trend: the Southcross Energy GP and TexStar Midstream merger; the three-prong acquisition/merger/dropdown announcement from The Williams Cos., Williams Partners LP and Access Midstream Partners LP; and the Enbridge incentive distribution right (IDR) restructuring.

Southcross Energy LLC, the privately held GP of Southcross Energy, announced a merger with TexStar Midstream Services, a privately held gathering and processing (G&P) partnership with Eagle Ford operations. The new GP company will be called Southcross Holdings LP.

While the acquisition of TexStar’s assets and expanding geographic scale is significant, the more noteworthy part of the transaction is how the Southcross GP created value for Southcross and itself. Effectively overnight, Southcross became a drop-down story with more visible growth prospects. To that point, once the merger transaction closes, Southcross will acquire 33% of TexStar’s midstream assets for $540 million, with the opportunity to acquire the remaining 67% over time.

Three days later, the Williams family proposed three separate transactions. First, Williams announced its intention to acquire Global Infrastructure Partners II’s 50% GP interest in Access. Williams already owned the remaining 50% prior to the announcement. Secondly, Williams proposed a merger between its two daughter MLPs, with Williams Partners merging into Access but keeping the Williams Partners name.

While this merger will make Access debt investment grade, its cash-flow risk profile will increase. Relative to Access G&P service contracts, which are fee-based with minimum volume commitments, Williams Partners’ G&P contracts have more commodity price exposure.

Finally, Williams announced intentions to drop down its remaining NGL and petrochemical assets into the merged Williams Partners, reinforcing Williams’ goal of becoming a pure-play GP holding company.

There are administrative savings from having fewer entities. More importantly, structural simplification can be a form of value creation for investors, for ease of understanding and modeling.

A day following Williams’ announcement, Enbridge Energy Partners LP and its GP, Enbridge Inc., announced their decision to eliminate Enbridge Energy Partners’ existing IDRs. In return, Enbridge Inc. will receive 66.1 million Class D units as well as 23% of incremental cash distributions above the current distribution. These units can convert after five years to Class A common units. Effectively, the MLP will have one distribution split level at 25% (23% incremental plus the base 2% that most GPs receive), eliminating the 50% tier and reducing its cost of equity.

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