Brookfield Business Partners L.P.: Another Attractive Spin-off from Brookfield Asset Management Inc.

It was only in mid-2016 when Brookfield Asset Management Inc. (TSX:BAM.A)(NYSE: BAM) moved to unlock further value by listing Brookfield Business Partners L.P. (TSX: BBU.UN)(NYSE: BBU) which is essentially its private equity business. Since then it has performed strongly, generating a return of almost 15% for investors and embarked on a strategy aimed at expanding its business to bolster its growth prospects. Its latest deal is the move to acquire the gasoline station business of Loblaw Companies Limited (TSX: L).

Now what?

Brookfield Business Partners owns and operates a globally diverse portfolio of assets across North America, Australia, Europe and Asia that is valued at $8.2 billion. These businesses include construction, real estate, logistics, facilities management, manufacturing and mining. The partnership also owns and operates energy operations involved in upstream oil and gas production as well as oilfield services such as drilling.

The latest move to buy Loblaw’s gasoline business which consists of 213 gasoline stations for $540 million, while a surprise for some investors, is a sound move for Brookfield Business Partners.

It will give it ownership of one of Canada’s single largest chains of gas stations which is a business with considerable scale, existing loyal customers and solid growth opportunities. After forging an agreement with Imperial Oil Limited, they will be rebranded as Mobil, marking the introduction of that brand to Canada.

The deal fits with Brookfield Business Partners philosophy of acquiring and managing assets that operate in industries with steep barriers to entry and low production costs.

Because the majority of its cash flow comes from the construction industry, followed by the oil industry, the move into retail fuel distribution will further diversify its earnings.

This isn’t Brookfield Business Partners only transaction currently underway.

It is also in the process of completing the purchase of a controlling stake in Odebrecht Ambiental S.A., Brazil’s largest private water distribution, collection and treatment company. This offers considerable growth potential because as the Brazilian economy improves after experiencing its worst economic crisis in a decade, Odebrecht’s market share will grow. It shouldn’t be forgotten that Brazil has a young and rapidly growing population which will drive further demand for water distribution, collection and treatment services.

The partnership is also working on the acquisition of an 85% stake in one of the U.K.’s leading distributors of fuels Greenergy Fuel Holdings Ltd., which has an extensive network delivering 18 billion litres of fuels annually.

On completion, these deals will diversify Brookfield Business Partners’ earnings giving its bottom-line a healthy boost while helping it to meet its targeted return on investments of 15% to 20% annually. This rate of return certainly appears feasible given the nature of its business, the types of assets it owns and the strength of its management.

Investors shouldn’t forget that it has the ability to tap into the considerable resources of its parent Brookfield Asset Management. 

So what?

It is early days for Brookfield Business Partners, but it is already unlocking value for investors and has delivered an outstanding return. For the reasons discussed, including the latest transaction to acquire Loblaw’s retail fuel business, Brookfield Business Partners is well positioned to continue this trend and unlock further value for investors. While waiting for this to occur, investors will be rewarded with a sustainable regular distribution totalling US$0.25 annually, which gives it yield of just over 1%.