Summit Midstream Corporation (SMC) shares are soaring today after the company announced a significant acquisition. The company is purchasing Tall Oak Midstream Operating, LLC from Tailwater Capital LLC for a cool $155 million, a mix of cash and common stock. This strategic move signifies a major expansion for Summit, particularly in the Arkoma Basin.
The deal brings with it a substantial boost to Summit’s operations, adding 440 MMcf/d in processing capacity, over 400 miles of pipelines, and more than 300,000 dedicated acres. This acquisition translates to a significant diversification of Summit’s commodity portfolio, now encompassing both oil and natural gas. This move positions Summit to capitalize on the growing demand for natural gas.
Beyond the operational benefits, the acquisition also has a positive impact on Summit’s financial standing. The deal lowers the company’s pro forma leverage from 4.4x to 3.8x. This improved leverage profile sets the stage for potential future dividends and stock buybacks, likely to be implemented in 2025. The acquisition is valued at approximately 5.6x the projected 2025 adjusted EBITDA.
The acquisition also brings a new partner to the table. Tailwater Capital will hold a 35% stake in the pro forma company, with Summit’s management team remaining at the helm. The company’s board will expand to include four new directors from Tailwater.
To break down the financial details of the acquisition, Summit will pay $155 million in cash and issue 7.5 million shares of a mix of SMC Class B common stock and Partnership common units. There is also a contingent cash consideration of $25 million. To discuss the acquisition in greater detail, Summit will host a call on October 2, 2024.
The market is reacting favorably to the news, with SMC shares surging by 9.61% to $37.76 at the time of writing. This acquisition highlights Summit Midstream’s commitment to growth and strategic expansion in the energy sector, particularly in the Arkoma Basin. The company’s increased presence in the region, coupled with its improved financial position, suggests a promising future for Summit Midstream.
