15 Months of C-Store M&A

SCOTTSDALE, Ariz. -- The past few years have witnessed explosive merger-and-acquisition activity in the convenience-store industry. The result has been that the very large players have gotten bigger, some other large players have been acquired and gone away, and many small to medium-size operators have decided, for a number of reasons, to sell their companies in this attractive purchase-price environment.

Here’s a look at how dozens of c-store chains grew their store count between January 2017 and today …

In perhaps the largest industry acquisition in history, 7-Eleven Inc., Irving, Texas, entered into an asset purchase agreement in April of last year with Sunoco LP to acquire 1,108 of its convenience stores in 19 geographic regions for $3.306 billion. In the transaction, which represented a strategic decision on the part of Sunoco to move away from a retail focus toward wholesale-fuels distribution, 7-Eleven agreed to acquire the Sunoco locations primarily along the East Coast and in Texas, as well as the associated trademarks and intellectual property of the Stripes convenience-store brand and the Laredo Taco Company foodservice brand.

As a result of the acquisition, which closed in January of this year, 7-Eleven will have a total of 9,815 convenience stores in the United States and Canada.

As a part of the larger transaction, Sunoco and 7-Eleven’s SEI Fuels entered into a 15-year fixed-rate take-or-pay fuel supply agreement under which Sunoco will provide base volumes of approximately 2.2 billion gallons of fuel per year, with committed growth of 500 million gallons in the first four years.

Sunoco also announced that it would sell 208 Stripes locations in western Texas, New Mexico and Oklahoma in a separate auction process, and Sunoco signed a written agreement last year with a commission marketer with respect to those locations.

Sunoco indicated that it will maintain a presence in retail through a platform for the Sunoco fuel brand and about 400 APlus franchised locations, as well as its ownership in Aloha Petroleum, which has 54 retail locations in Hawaii. To satisfy FTC concerns, Sunoco agreed to retain 33 fuel outlets that 7-Eleven would have otherwise acquired, and 7-Eleven agreed to sell 26 retail fuel outlets that it owned to Sunoco.

Laval, Quebec-based Alimentation Couche-Tard Inc. (ACT) has been extremely active in the past several years with respect to c-store company acquisitions, and the pace of that activity appeared to accelerate within the past year or so.

In June of last year, ACT closed on the acquisition of CST Brands Inc. for a total enterprise value of $4.4 billion, including the assumption of net debt. CST Brands, based in San Antonio, had more than 2,000 locations throughout the southwest United States, Georgia, Florida, New York and eastern Canada. CST Brands also owned the general partner of CrossAmerica Partners LP, a master limited partnership that distributes branded and unbranded road transportation fuel to about 1,200 locations in the United States. As a result of this acquisition, ACT acquired approximately 21% of CrossAmerica’s outstanding common units.

As a condition of obtaining clearance from the Federal Trade Commission (FTC) to complete this transaction, ACT agreed to sell 70 sites to Dallas-based Empire Petroleum Partners LLC. ACT also agreed to divest certain sites in Canada to Parkland Fuel Corp. for approximately $750 million to satisfy concerns of the Canadian Competition Bureau. As a result of these transactions, ACT added approximately 1,200 convenience stores to its U.S. network.

In July 2017, ACT announced that it had signed an agreement with Holiday Cos. to acquire all of the issued and outstanding shares of Holiday Stationstores Inc. and certain affiliated companies. Holiday’s assets, located primarily in the upper Midwest, include 374 company-operated and 148 franchised convenience stores, a food commissary and a fuel terminal. The transaction closed in December of last year, and in connection with obtaining FTC clearance, ACT agreed to divest 10 convenience stores.

Also in July, ACT, through its Circle K Stores Inc. subsidiary, completed the acquisition of 53 Cracker Barrel stores located primarily in the Baton Rouge, La., market from American General Investments LLC and North American Financial Group LLC for an undisclosed price.

In August, CrossAmerica Partners LP announced that it would acquire more than 100 retail sites from Jet Pep Inc., based in Holly Pond, Alabama, for a total consideration of $72 million. The assets consisted of 102 commission-operated retail sites, including 92 fee sites, five leased sites and five independent commission accounts. In connection with that acquisition, which closed in November, CrossAmerica agreed to divest three fuel stations in Alabama to address FTC concerns. In addition, Circle K Stores Inc. closed on the purchase of certain other assets of Jet Pep, including a fuel terminal, associated trucking equipment and 18 other retail sites, for an undisclosed amount.

In October 2017, The Kroger Co., Cincinnati, announced that it intended to explore strategic alternatives for its convenience-store business, including a potential sale, and the company retained Goldman Sachs to review and evaluate its options. Kroger’s c-store business includes 784 locations in 18 states and includes 68 franchised operations. Including fuel, Kroger’s convenience-store business generated $4 billion in total sales in 2016. The company sold 1.2 billion gallons of fuel and had inside sales revenue of $1.4 billion in 2016.

As a result of that evaluation, Kroger decided to commence a sale process for the c-store unit. After an extensive sale process, Kroger and EG Group, a privately held petroleum forecourt convenience-store retailer based in Blackburn, United Kingdom, announced a definitive agreement in February 2018 for the sale of Kroger’s c-store unit for $2.15 billion. The companies expect to close the transaction during the first quarter of Kroger’s fiscal year. As part of the agreement, EG Group will establish its North American headquarters in Cincinnati and will continue to operate the locations under the established banner names.

GPM Investments LLC, Richmond, Va., has had an extremely active acquisition run over the past year or two.

In April of last year, GPM acquired Mountain Empire Oil Co. Inc., operating as Roadrunner Markets, including all 92 convenience stores with fuel sales and seven quick-service restaurants, all of which are located in North Carolina, South Carolina, Tennessee and Virginia.

In May, GPM Petroleum LP, a master limited partnership, filed with the U.S. Securities and Exchange Commission to raise up to $100 million in an initial public offering.

In July, GPM acquired seven convenience stores with fuel in Missouri from Mid-Missouri Oil Co., which operate under the Jiffy Stop Food Marts banner.

And in December, GPM signed an agreement to acquire 273 convenience stores in Texas, Oklahoma, Louisiana and Arkansas from E-Z Mart Stores Inc. The transaction is expected to close in the second quarter of 2018.

The former Tesoro Corp., now known as Andeavor Corp., San Antonio, acquired the outstanding shares of Western Refining Inc. in a transaction value at $4.1 billion. Western Refining is an independent refining and marketing company that operates refineries in Texas, New Mexico and Minnesota. Its retail operations include approximately 550 gas stations and convenience stores in Arizona, Colorado, Minnesota, New Mexico, Texas and Wisconsin, primarily under the Giant, Howdy’s and SuperAmerica brands.

Renamed Andeavor in June, the acquiring company is an independent refiner and marketer of petroleum products and operates seven refineries in the western United States.

In August, Andeavor acquired all 39 convenience stores owned by Flyers Energy LLC. Andeavor’s retail marketing system includes more than 2,400 retail stations under various major fuel brands.

Global Partners LP, Waltham, Mass., has spent the past year or more positioning itself for growth and profitability. In April 2017, Global announced that it would sell 86 nonstrategic assets through NRC Realty & Capital Advisors, Chicago. The company also terminated a sublease for more than 1,600 rail cars, saving more than $10 million.

Also in April, the company expanded its retail network in western Massachusetts by signing a long-term lease agreement for 22 gas stations and c-stores with O’Connell Oil Associates Inc. of Pittsfield, Mass. In May, Global sold 31 gasoline stations and c-stores to Mirabito Holdings Inc. In July, Global completed a sale-leaseback transaction involving 30 gas stations and convenience stores. The sale-leaseback transaction, Mirabito sale and disposition of sites in 2016 generated approximately $136 million in gross proceeds for Global.

In September, Global announced that it was offering to sell 19 gas station and c-store properties in five northeastern states, again through NRC Realty & Capital Advisors. In October, Global acquired 33 convenience stores in the Worcester, Massachusetts area from Honey Farms Inc. for a purchase price of approximately $36 million. The transaction included 11 company-operated sites with fuel and c-stores and 22 company-operated stand-alone c-stores.

In July 2017, Western Alta Holdings LC’s parent company of Pester Marketing Co. acquired the operations of six Loco Convenience Stores in Colorado through a joint venture with Loco Inc. The next month, the Denver-based company expanded its footprint to the West Coast by acquiring five convenience stores in a joint venture with R.H. Smith Distributing Co. Inc. of Yakima, Wash. In December, the company acquired eight Kwik Stop convenience stores in Colorado.

And in January 2018, Pester Marketing acquired the 42 retail convenience stores owned by Western Convenience Stores Inc. The stores are located in and around Denver, Colorado Springs, Pueblo and Grand Junction, Colo., mountain resort locations and western Nebraska. All of these stores will be rebranded to the company’s proprietary Alta Convenience Stores brand and will offer Phillips 66 gasoline products. NRC Realty & Capital Advisors served as financial adviser to Western in connection with the transaction. With the closing of the Western transaction, Western Alta’s store count rose to 119 locations in five states.

West Des Moines, Iowa-based Yesway has been extremely active over the past year with a number of smaller strategic acquisitions. In March 2017, Yesway added two convenience stores in Iowa and five in Kansas. In May, Yesway announced the acquisition of 35 Wes-T-Go and Chillerz Convenience Stores in Abilene, Texas. And in two separate transactions announced in November, Yesway acquired KAPS LLC, a five-store chain in Kansas, and the New Deal Travel Center of Texas located in New Deal, Texas. With these acquisitions, Yesway has a portfolio of more than 70 locations.

Two noteworthy Canadian transactions occurred within the past year or so.

In April 2017, Loblaw Cos. Ltd. and Brookfield Business Partners LP of Toronto entered into a definitive agreement for Brookfield to acquire all 213 of Loblaw’s gasoline stations and associated convenience kiosks adjacent to Loblaw-owned grocery stores across the country for approximately $427.5 million. Brookfield also entered into an agreement with Imperial Oil to rebrand the gas-station portfolio to the Mobil fuel brand, which will mark the introduction of the Mobil fuel brand in Canada. The Loblaw-Brookfield transaction closed in July.

Also in April, Parkland Fuel Corp. entered into an agreement with Chevron Canada Ltd. to acquire all of the shares of Chevron Canada R&M ULC, which operates its Canadian integrated downstream fuel business, including 129 Chevron-branded gas stations in the Vancouver, British Columbia, area. Parkland, based in Calgary, Alberta, agreed to pay $1.46 billion (Canadian) in the transaction, plus an estimated $186 million (Canadian) in working capital. The deal, which closed in October, also included 37 commercial cardlock and three marine fueling locations, a refinery in Burnaby, B.C., three terminals and a wholesale business, which includes aviation-fuel sales to Vancouver International Airport.

• Atlantis Management Group,Mount Vernon, N.Y., acquired the Food Bag convenience-store chain from General Equities Inc. The transaction included the purchase of more than 50 fee-owned sites and a transportation company. The Food Bag chain served customers in Connecticut, New York, Pennsylvania and Florida.

• Enmarket Stations Inc., Savannah, Ga., acquired a 35-convenience-store chain from Clyde’s Market Inc. The stores are located in southeastern Georgia. In February of this year, Enmarket reached an agreement with Brabham Oil Co. Inc. to purchase its 34 E-Z Shop convenience stores in South Carolina. The transaction also includes the purchase of Brabham Oil’s wholesale-fuel distribution company. Enmarket is expected to assume operations of the sites in mid-April. With these two acquisitions, Enmarket’s store count will rise to 122.

• H&S Energy LLC, Orange, Calif., purchased 50 convenience stores in northern California from Tower Energy. The former Tower Market sites, which are located in the Sacramento and East Bay areas, have been rebranded as Power Market and Extra Mile. The locations are branded Chevron.

• Applegreen PLC, an Irish retailer, acquired The Brandi Group, which operates the 42-unit Pitt Stop convenience store chain based in Columbia, S.C., for $5.4 million, including working capital, and Getty Realty Corp. provided sale-leaseback financing of $70.1 million in connection with the transaction.

• Kwik Chek Convenience Stores Inc., Bonham, Texas, purchased eight convenience stores in southern Texas owned and operated by Cleo Bustamante Enterprises Inc. Most of the stores are co-branded with either Subway quick service restaurants, Church’s Chicken or Papa John’s. NRC Realty & Capital Advisors served as financial advisor to Cleo Bustamante Enterprises in connection with the transaction.

• Kwik Trip Inc., La Crosse, Wis., acquired the assets of PDQ Food Stores Inc., consisting of 34 company-operated convenience stores located in southeastern Wisconsin. The company indicated that it would spend $30 million to $40 million to convert the stores to the Kwik Trip brand.

• Par Petroleum LLC, a subsidiary of Par Pacific Holdings Inc., Houston, entered into a definitive agreement to purchase 33 Cenex Zip Trip convenience stores in eastern Washington and northwestern Idaho from CHS Inc. for approximately $70 million plus inventory. The acquisition was the first one for Par Pacific Holdings in the continental United States, and the company has 90 retail outlets in Hawaii.

• Stinker Stores Inc., Boise, Idaho, acquired Bradley Petroleum Inc. and Sav-O-Mat Inc. in a transaction that included 40 convenience stores in Colorado and one in Wyoming.  Bradley Petroleum operated Sinclair stations in the Colorado market, especially in the Denver metropolitan market.

• The Andretti Petroleum Group, San Carlos, Calif., and Lane Colvin, acquired the assets of Colvin Oil Co., allowing the company to expand into Oregon and Washington from California and more than double its retain network from 44 to 91 locations. The enterprise will continue to operate under the Colvin Oil identity.

• Casey’s General Stores Inc., Ankeny, Iowa, announced a goal for fiscal 2017 of building or acquiring 77 to 116 convenience stores, replacing 35 existing locations and completing 100 major remodels. The company is looking to expand in Wisconsin, Oklahoma and Arkansas, as well as Tennessee and Kentucky. Casey’s opened its second distribution center in Terre Haute, Ind., in 2016, and has expanded its footprint to include a 500-mile radius from the distribution center.

• QuikTrip Corp., Tulsa, Okla., announced that it is expanding into the San Antonio and Austin, Texas, markets. The company expects to open the first stores in each city this summer and intends to add 100 stores in these markets.

• RaceTrac Petroleum Inc., Atlanta, announced plans to open 30 or more convenience stores in the Nashville area in the next five years, marking the chain’s first expansion into a new market in more than 15 years. RaceTrac also announced that it plans to open 50 more convenience stores in Florida over the next two years.

• Wawa Inc., Wawa, Pa., expanded its presence into south Florida in 2017 and now has 110 stores in the state. The chain plans to open 25 stores in Florida each year for the next several years. In June, the company also announced plans to open 30 convenience stores in the Washington, D.C., market. Wawa also indicated that it would continue its expansion in the surrounding counties in Maryland and Virginia.

The inescapable conclusion to be reached from a review of the last couple of years of M&A activity in the c-store market is that the largest players will continue to grow and consolidate the industry.

Some of the major oil companies are also looking to re-enter the retail space, private-equity firms remain quite interested in the industry, and a number of foreign companies have made major acquisitions lately. All of this bodes well for those owners who are thinking about selling their companies.

With record purchase-price multiples and the amount of liquidity available to the major players, it would appear that the consolidation trend will continue. In addition, as the larger players continue to grow and solidify their positions, smaller and medium-size operators will undoubtedly find it more difficult to compete effectively with the big players. That fact will probably lead to a further acceleration of the consolidation process, especially if  purchase price multiples continue to remain strong.

It is still early in the year, and we are aware of several significant transactions that are in process. We will report on them later in the year.

Dennis L. Ruben is executive managing director of NRC Realty & Capital Advisors LLC, Chicago. Contact him at dennis.ruben@nrc.com.