Black Hills Corporation (BKH) inked two acquisition agreements with Energy West Wyoming, Inc. and Energy West Development, Inc., both subsidiaries of Gas Natural, Inc.
Per the contracts, Black Hills will purchase the stock of Energy West Wyoming. The company will also acquire pipeline assets, including a 30-mile gas transmission pipeline and a 42-mile gas gathering pipeline, from Energy West Development.
Upon customary closing adjustments and approvals, the transactions, valued at $17 million, are expected to complete between the next six to 12 months.
Upon approval, the acquisition of the stock of Energy West Wyoming will enable Black Hills to increase its scale of operations significantly as the Wyoming-based gas utility firm is currently serving 6,700 customers and has coverage in Cody, Ralston and Meeteetse. Post transaction, the company plans to operate the acquired gas utility firm under the name of “Black Hills Energy”.
The second transaction is expected to help Black Hills in expanding its utility infrastructure. This will subsequently help the company to provide reliable services to its customers as the assets are located close to its service territory.
Black Hills usually acquires assets in a similar line of business, which are also accretive in nature. The company’s earnings are expected to be marginally accretive after the first full year of its ownership of these two assets.
Black Hills strongly follows an acquisition-driven growth strategy to expand its operations. In the first quarter of 2014, the company acquired gas systems, adding around 70 customers to its portfolio.
In another transaction, in Jan 2014, Black Hills signed an agreement to acquire a natural gas pipeline for $6 million from MGTC Inc., an indirect and wholly owned subsidiary of Anadarko Petroleum Corporation (APC). Upon approval, the transaction is expected close by the end of 2014.
Black Hills maintains a stable liquidity position, including cash and cash equivalents of around $14.7 million and an availability of $132.7 million under revolving credit facilities as of Jun 30, 2014. In addition, the company has a strong cash generation capacity. During the first half of 2014, Black Hills’ operating cash flow was $173.8 million. This financial stability allows the company to pursue an inorganic expansion strategy.
Black Hills currently has a Zacks Rank #3 (Hold). However, some better-ranked stocks in the sector include IdaCorp, Inc. (IDA) and American Electric Power Co., Inc. (AEP). IdaCorp carries a Zacks Rank #1 (Strong Buy), while American Electric Power holds a Zacks Rank #2 (Buy).
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