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IFM closes largest-ever deal in $10.3bn Buckeye acquisition

IFM chief executive Brett Himbury says deals at such a large scale see ‘improved’ risk-return dynamics compared with others at a lower ticket.

IFM Investors has struck its largest-ever single deal by acquiring publicly listed US energy company Buckeye Partners for $10.3 billion.

The firm closed the deal late last week following its announcement in May. The deal comprises an equity component of $6.5 billion and a debt component of $3.8 billion, and sees Buckeye Partners become part of the portfolio held in the IFM Global Infrastructure Fund.

Buckeye manages 6,000 miles of pipeline and more than 100 delivery locations and 115 liquid petroleum terminals, giving it capacity to store more than 118 million barrels of oil products.

Speaking to Infrastructure Investor, IFM Investors chief executive Brett Himbury said the asset provided “a great opportunity for continued development and strengthening of returns”.

On the scale of the deal, Himbury said IFM had consciously decided to shift towards larger deals because there was likely to be less competition for prized assets.

“There’s lots of money looking for infrastructure opportunities around the world. However, there’s not a lot of firms that have the capacity to do $10 billion-plus [deals],” he said. “If you move into that sphere the competition is less. Then based on supply and demand, you’d expect that value becomes better – and that’s been our experience. Part of the logic of being at this sort of scale is, amongst other things, there’s fewer competitors, so in our view the risk-return dynamics are improved.”

On how investing in a midstream oil business like Buckeye tallies with the desire to maintain positive ESG credentials, Himbury defended the deal, arguing it was “much better to invest and improve than it is to divest and protest”.

“We intend to own this asset for many decades, so first and foremost we looked at what would happen if there was a fundamental and very significant decrease in refined products. We’ve assessed that risk, and quantified and modelled that risk,” he said.

“Capital has a role to play. In our view, we should obviously be conscious of the need to reduce carbon emissions around the world – it’s fundamental to society, to enterprise and to returns. The question is, what’s the best way to do that? Our view is that the best way to do that is to invest and improve – and that’s exactly what we’re going to do here with Buckeye.”

On IFM’s plan for Buckeye, Himbury said: “We’ve got a business plan where we’ll look at substantially reducing the CO2 emissions in year one, year two, year five, year 10 and year 20 – and we think as a result of doing that, not only will society be a cleaner and greener place, but this enterprise will be worth more. So it lines up very much with our ESG [aims], to invest and improve, and that’s what will happen here.

Himbury also highlighted the amount of under-utilised land owned by Buckeye that offered the potential for capex deployment, with the chance to diversify the company’s energy mix into renewables like solar and onshore and offshore wind.

“There is not just the asset as it stands today but the opportunity to continue to invest to grow revenue and diversify the sources of revenue, both in terms of geographic sources and energy sources,” he said.

IFM manages three other midstream assets globally, including its 2007 investment in Colonial Pipeline, a US company managing oil and gas transportation assets, based in Georgia.

The firm added that it believed the Buckeye deal was the largest Australian cross-border acquisition of a foreign company since mining giant BHP bought US energy company Petrohawk in 2011 for $15.1 billion.