American Midstream Partners LP (NYSE: AMID), betting on the expected natural gas and NGL growth from the rebounding Eagle Ford Shale, said Nov. 1 it agreed to acquire Southcross Energy Partners LP (NYSE: SXE) and assets from Southcross Holdings LP in two transactions totaling $815 million.

American Midstream billed the deal as a partnership and said that Southcross would add about $900 million in enterprise value to create a $3 billion company. The midstream company expects the combined company to generate annualized 2018 adjusted EBITDA of more than $300 million.

In the next 10 years, American Midstream expects an upsurge along the Texas Gulf Coast with NGL demand up about 75% and natural gas demand growth increasing by 30%. The company cites petrochemical and industrial use, LNG export projects, exports to Mexico and global LPG demand that is anticipated to grow by about 500 billion cubic feet (Bcf) per year through 2020.

“The addition of the Southcross assets allows us to capture the full midstream value chain in the very prolific Eagle Ford basin,” Lynn L. Bourdon III, American Midstream’s chairman, president and CEO said. “The transaction represents a unique opportunity to expand our onshore gathering, processing and transmission services, linking supplies from the economically attractive Eagle Ford Shale to high demand growth markets along the Gulf Coast.”

American Midstream is following through on a strategy to redeploy capital into higher growth businesses while divesting noncore assets, he said. The company noted in August it was seeing a “resurgence of drilling” tied to its Eagle Ford system.

As part of the purchase price, American Midstream will repay the Southcross companies’ $654 million debt through asset sales, borrowings and proceeds from bonds and equity raises. The company said it will monetize up to $500 million of noncore assets primarily related to its terminaling services segment.

Prior to the deal’s announcement, American Midstream said it owned about 4,000 miles of interstate and intrastate pipelines in the Gulf of Mexico, Permian Basin, East Texas and the U.S. Southeast. After assimilating Southcross’ assets, the company said its midstream infrastructure would include 10 processing plants and more than 8,000 miles of crude, natural gas and NGL pipelines.

Southcross appears to have a positive deal on the table that stabilizes investors’ outlook and provides an opportunity for income generation, Darren Horowitz, Raymond James analyst, said in a Nov. 1 report.

Southcross unitholders also stand to see some income generation from the deal. American Midstream will pay $1.65 per unit and Southcross unitholders will receive 16% of the distribution when the deal closes.

Southcross’ willingness to sell at a low premium underscores Horowitz’s opinion that the company had difficulty performing for volumes and was hamstrung by leverage that prevented it from paying distributions to unitholders.

American Midstream “is attempting to improve its scope and scale” with Eagle Ford gas and an NGL value chain by purchasing “both the public and private assets of the Southcross franchise,” he said. “All in, the deal may have a high likelihood of approval.”

Bruce A. Williamson, president and CEO Southcross’ general partner, said equity holders in Southcross Holdings and Southcross Energy will be able to participate in a “diverse, sustainably capitalized company with units that offer immediate cash distributions and strong coverage.”

“This combination with American Midstream provides significant benefits to all of Southcross’ stakeholders,” he said.

As part of the deal, American Midstream’s sponsor, an ArcLight Capital Partners LLC affiliate, agreed to transfer ownership of 15% of American Midstream’s general partner and incentive distribution rights to Southcross Holdings.

Southcross Holdings indirectly owns all equity interest in the general partner of Southcross Energy and indirectly owns gas pipeline, treating and fractionation facilities in the Eagle Ford Shale and elsewhere in South Texas. Southcross is an integrated natural gas midstream services provider with assets primarily in the Eagle Ford as well as Mississippi and Alabama.

American Midstream said the transaction is conditioned on the Southcross Holdings deal and until both close, it and Southcross Energy Partners will operate separately.

Deutsche Bank acted as lead financial adviser and BofA Merrill Lynch acted as financial adviser to American Midstream. Gibson Dunn & Crutcher LLP acted as legal counsel to American Midstream. RBC Capital Markets acted as lead financial adviser, Wells Fargo Securities acted as financial adviser and Locke Lord LLP acted as legal counsel to Southcross Holdings and Southcross Energy. Tudor, Pickering, Holt & Co acted as financial adviser and Jones Day acted as legal adviser to Southcross Holdings’ special committee. Jefferies LLC acted as financial adviser and Akin Gump Strauss Hauer & Feld LLP acted as legal adviser to Southcross Energy’s conflicts committee.

Darren Barbee can be reached at dbarbee@hartenergy.com.