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Dallas private equity firm to acquire MLP index provider Alerian

The Dallas-based private equity firm Aretex Capital Partners has a deal to buy U.S. energy infrastructure index and data provider Alerian for an undisclosed amount after a Hong Kong-based competitor's bid of as much as $812 million failed to gain traction.

ZZ Capital International Ltd., which agreed to acquire Alerian in July 2017, reportedly asked in April to restructure the transaction after missing December 2017 and March 31, 2018, deadlines for closing the deal. The Hong Kong-based investment firm had said in a Chinese regulatory filing in February that the depleted pool of capital available for overseas investments had required pursuing offshore funding for deals in process.

Aretex was launched by two former ZZ Capital executives, according to a May 23 Reuters report. Alerian would be the firm's first investment if the transaction closes, an event scheduled for later in the second quarter. Kenny Feng would remain CEO of the index provider once the transaction is completed, and a former executive vice president of Nasdaq Inc., John Jacobs, would join the board as Alerian's chairman.

The pending sale comes as the bellwether Alerian Master Limited Partnership Index, which tracks oil and gas infrastructure master limited partnerships, could lose some major constituents as a result of structural reorganizations announced May 17 by Enbridge Inc., Williams Cos. Inc. and Cheniere Energy Inc. The index has lost 2.5% so far in 2018 as improving operations across the midstream sector have failed to reverse negative investor sentiment about tax policy changes and the MLP structure itself.

In addition to high equity costs, high leverage and required cash payments to general partners that have weighed on MLPs for months, the Federal Energy Regulatory Commission's March 15 decision to extinguish a key tax benefit for oil and gas pipeline partnerships sent energy pipeline share prices into a tailspin. That policy change, to no longer allow MLPs to recover an income tax allowance on cost-of-service rates, in part prompted the May 17 wave of energy company consolidations as investors show a preference for traditional corporate structures.

Barclays is acting as financial adviser to Aretex, and Ropes & Gray LLP and Sheppard Mullini Richter & Hampton LLP are acting as legal counsel to the firm.