My first rule for buying takeover targets is simply this: I never buy a stock I wouldn’t want to own if there were no deal.

That basically means looking for companies that can grow in their own right. They may never look for an offer, let alone fetch one. But when an otherwise solid company does attract an offer to merge, you can bet it’s going to be attractive. And in the meantime odds are it will build wealth for you anyway while you wait.

By contrast, most deals for underperforming companies amount to “take-unders.” That is, the acquirer is the only way out for shareholders, and its price is a suboptimal selling price.

A brief look at How They Rate reveals that not too many master limited partnerships (MLP) can be considered chronically weak. I indicate those that are as “sells.” And almost all of them are in businesses other than energy.

Energy midstream MLPs’ strength is in large part a function of what they do, i.e. provide fee-based services under long-term contracts to secure energy producers. And safety has been further augmented by conservative financial policies, such as using record-low corporate borrowing rates to term out debt as well as to cut interest costs.

There is, however, one big reason for even energy midstream MLPs to merge: Their primary customers–energy producers–have been hit by a dramatic increase in regional pricing differentials for oil and natural gas.

These differentials stem, ironically, from a shortage of energy midstream infrastructure, from pipelines and gathering systems to processing and storage facilities. That’s caused by a combination of booming oil and gas production–thanks to rapidly developing drilling technology–and the fact that shale reserves are mostly located in areas heretofore under served by midstream companies.

Differentials with the West Texas Intermediate crude (WTI) benchmark are greatest with Canadian oil.

But they’re also sizeable in the Bakken region of the Upper Midwest, where expensive transport by rail is attempting to take up the slack. Wide differentials in price mean lower profits to producers operating in areas with infrastructure shortages.

The opportunity presented via the arbitrage of these differentials ensures that investment capital will ultimately materialize to build sufficient midstream assets in affected regions.

For example, the Seaway pipeline from Oklahoma to the US Gulf Coast–built by a venture between Enterprise Products Partners LP (NYSE: EPD) and Canada’s Enbridge Inc (TSX: ENB, NYSE: ENB)–is this year reducing the price differential between North America’s benchmark WTI and the global standard, Brent crude.

Until such assets are built, however, affected producers can only suffer. And unless a company is large enough to absorb lower near-term margins it will have no choice but to cut back its development plans.

This, in turn, means fewer companies will sign the long-term contracts midstream companies need to raise financing and start building. And that means reduced opportunity to build the very midstream infrastructure that will eventually alleviate the bottleneck and reduce the price differential.

Bigger Is Better

Small producers are particularly exposed to this risk. But even intermediate-sized companies have felt the bite. EOG Resources Inc (NYSE: EOG) and Encana Corp (TSX: ECA, NYSE: ECA), for example, both came to the conclusion in late 2012 that they should sell their stakes in the Kitimat liquefied natural gas (LNG) facility in British Columbia.

It wasn’t that the project itself was deemed unworkable. In fact the buyer of their Kitimat shares–Chevron Corp (NYSE: CVX)–is pushing ahead full bore, with Canadian regulators approving construction shortly after the purchase. It was just that these companies simply couldn’t afford to shell out the billions needed to complete the project with no return expected for several years.

That’s despite the huge payoff they would have enjoyed as partners after completion as Canadian natural gas was unlocked for markets where prices are many times higher.

The US Energy Information Administration projects the US will overtake Saudi Arabia as the world’s largest producer of oil by the next decade.

Canada, meanwhile, is having its own boom as its shale reserves of oil and gas are similarly unlocked by technology.

Considering as well the likely cooling effect of austerity on the US economy in 2013, it’s unlikely we’ll see any significant narrowing of price differentials anytime soon.

This means energy projects are likely to be increasingly dominated by super-sized producers such as Chevron and Exxon Mobil Corp (NYSE: XOM), which have the deep pockets to invest for the long haul.

Big companies like to deal with other big companies. Consequently, the ascendancy of the Super Oils in North America means the larger MLPs are likely to win most of the contracts to build the new infrastructure needed to leaven out the oil and gas price differentials and restore balance to the continent’s energy market.

And that means mergers as MLPs work to get bigger faster, and position themselves for the contracts to come.

Up until last year the vast majority of MLP mergers were takeovers of general partners (GP) by limited partnerships (LP). These deals were designed to reduce MLP complexity perceived as a turnoff to investors, particularly large institutions, with the goal of cutting capital costs. And virtually all of them have enjoyed some measure of success in that respect, to the extent that there are now relatively few publicly traded GPs.

Deals between GPs and LPs do nothing on their own to increase companies’ scale and scope. By mid-2012, however, transactions involving assets began to pick up steam. And we also saw our first MLP acquisitions of non-MLPs, including Energy Transfer Equity LP’s (NYSE: ETE) purchase of the former Southern Union Group and later Energy Transfer Partners LP’s (NYSE: ETP) takeover of the former Sunoco Inc.

The next step is MLP purchases of other MLPs. And the first big deal in this area is Kinder Morgan Energy Partners LP’s (NYSE: KMP) USD4.8 billion buy of Copano Energy LLC (NSDQ: CPNO). The deal is all equity, with each Copano unit swapped for 0.4563 units of Kinder Morgan Energy, and the purchase price includes the assumption of some debt.

The deal needs unitholder approval at Copano, a much smaller energy midstream infrastructure operator focused on the Eagle Ford Shale. It also needs to clear US antitrust regulation, and it’s likely to get a full review from the Federal Energy Regulatory Commission.

Both are likely. Kinder Morgan Inc’s (NYSE: KMI) takeover of the much larger former El Paso Corp last year, for example, cleared all hurdles relatively quickly, despite some required asset sales.

Copano unitholders get a 23.5 percent premium to the MLP’s price before the deal was announced, and stand to gain even more as part of a larger and stronger Kinder Morgan Energy.

Kinder Morgan Energy will add “at least” USD0.10 per unit in distributable cash flow starting in 2014, and a proportionate amount depending on when the deal closes. And those projections are all the more solid, considering much is based on the consolidated of ownership in a venture co-owned between the two MLPs.

On its own Copano gives unitholders exposure to 6,900 miles of Texas pipeline and part ownership of several lucrative projects in the Eagle Ford, one of the most explosive areas for energy development in North America. Unlike the Bakken Shale, the Eagle Ford is much closer geographically to Gulf Coast ports and global markets. But by joining forces with Kinder Morgan Energy, upside is considerably greater for building new gathering, transport and processing for producers in the region.

The upshot is the deal is clearly win-win, particularly for a time when energy producer headwinds reward MLP size. After its recent run-up and trading in the upper 30s, Copano is priced about 5 percent below Kinder Morgan Energy’s offer, perhaps reflecting the opposition of some unitholders. But selling well above the pre-deal price, downside risk is hefty if the deal doesn’t succeed. And this MLP hasn’t increased its distribution since January 2009.

By contrast, Kinder Morgan Energy looks set for another year of 8 percent to 10 percent distribution growth. The LP also posted very strong fourth-quarter and full-year 2012 operating results (see Portfolio Update).

Kinder Morgan Energy is a buy up to USD90, while Copano is a hold.

See this month’s Best Buys feature for more on two solid candidates for future takeover bids that are currently also MLP Profits Growth Portfolio Holdings, Inergy Midstream LP (NYSE: NRGM) and Mid-Con Energy Partners LP (NSDQ: MCEP).