Acquisition seems to be becoming the norm in the financial world to achieve quicker growth. It is a costly way to expand. But buying a business that is ongoing reduces risk of failure .
Genesis Energy, L.P. (NYSE:GEL) recently took over the downstream transportation assets of Hornbeck Offshore Services, Inc. (NYSE:HOS) in order to enlarge the extent of its marine business operations.
Is it still a good investment?
Benefits of the acquisition to Genesis Energy, L.P. (NYSE:GEL)
Acquiring the downstream transportation business of Hornbeck Offshore Services, Inc. (NYSE:HOS) added a total of nine barges and nine tug boats to the company’s existing fleet of 50 barges and 23 tow boats. This fits Genesis Energy, L.P. (NYSE:GEL)’s current business, which includes a marine inland barge business, crude oil and heavy refined products storage, blending terminals and its crude oil pipeline systems.
The Hornbeck Offshore Services, Inc. (NYSE:HOS) barges are among the youngest fleets in the industry, with an average age of eight years. The new barges are also double-hulled and thus fulfill the regulatory compliance requirements of the Oil Pollution Act. The barges provide vapor recovery, and the tug boats were remodeled in 2005, They will be used to meet the transportation demands of refineries and storage terminals on the Gulf Coast, Eastern Seaboard, Great Lakes and Caribbean.
The two companies have planned to sign service contracts to ensure efficient running of operations and undisrupted services provided to customers, once the acquisition gets regulatory approval and becomes effective.
Although there is overlap in the customer base of the two companies, the acquisition is estimated to provide an immediate push to the acquirer’s cash flow.
Genesis Energy, L.P. (NYSE:GEL) is a very stable company with cash flows from operations growing at a Combined Annual Growth Rate (CAGR) of 28% in the last three years. The company also has a $1 billion revolving credit facility to pay for this acquisition while at the same time continuing to safely fund its other organic growth programs.
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