2013: Convenience Store Industry Year in Review
An M&A and capital markets perspective
The year 2013 proved to be a very active, surprising one in terms of merger-and-acquisition activity. Although it was not as active as 2012 was in terms of blockbuster transactions, there were a number of significant, notable transactions during the year. Also, a few large transactions involving California real estate that were “on the street” during the year did not appear to close.
Perhaps the most surprising transaction was the acquisition of Mid-Atlantic Convenience Stores (MACS) by Sunoco. Most industry observers had been speculating that Energy Transfer Partners, Sunoco’s new owner, would most likely spin off or sell Sunoco’s existing retail network. Instead, Sunoco chose to “double down” on the retail sector by adding MACS’ 300 c-stores in the Mid-Atlantic region. Another surprising acquisition involved Western Refining’s purchase of the ownership interests in Northern Tier Energy, which includes the SuperAmerica retail assets, consisting of 163 company-operated c-stores and 74 franchised locations.
Another story that partially unfolded during 2013 was the future of the retail network of Hess Corp. After much debate, the Hess board of directors decided to explore alternatives for its retail system, and in early 2014 it announced the spinoff of the retail assets to shareholders.
The larger industry players, 7-Eleven and Circle K, were relatively quiet last year compared to 2012. That seems to be the result of the lack of large, attractive companies and portfolios to acquire rather than a lack of interest on their part.
GPM Investments completed one of the largest transactions of the year through its acquisition of the Southeast division of VPS Convenience Store Group, which consisted of 263 company-operated and dealer locations in the Southeast. The acquisition brings GPM’s store count to 467 company stores and 143 dealer locations in 10 states. That is a remarkable achievement based on some of the challenges that GPM had faced previously.
The following summary reflects our assessment of the most significant events of 2013 from the perspective of mergers and acquisitions, and capital markets.
Early last year, an “activist investor ” in Hess Corp. urged the Hess board of directors to consider ways to maximize shareholder value, including the possibility of divesting certain assets or forming a master limited partnership (MLP) or a real estate investment trust. The focus was on the company’s approximately 1,360 gasoline and c-store locations in 16 Eastern states. Hess ultimately retained The Goldman Sachs Group Inc. to sell its retail assets.
It was announced in early 2014 that improvements in shareholder value will come in the form of a spinoff of the company’s retail gas station network. The spinoff would be tax-free and distribute all Hess retail shares to shareholders in Hess Corp., according to the company. Among industry analysts, estimates of the value of the gas station portfolio have varied widely, from $1.2 billion to as much as $3.4 billion.
Rumors had swirled throughout the industry about potential purchasers for the Hess assets, with the names Ali- mentation Couche-Tard Inc., Marathon Petroleum Corp. and BJ’s Wholesale Club Inc. surfacing in early 2014. In addition, Hess entered into an agreement with Buckeye Partners LP to sell its East Coast and St. Lucia terminal network for $850 million. The company also sold its energy marketing business, which supplies natural gas and electricity to commercial, industrial and small-business customers in the Eastern half of the United States, to Direct Energy for $1.2 billion. Hess announced in December that it was selling its commercial fuels business outside of the New York City area to Sprague Resources LP, based in Portsmouth, N.H.
In October, Sunoco Inc. surprised the industry by announcing the purchase, through an affiliate, of Mid-Atlantic Convenience Stores LLC (MACS), which has 300 convenience stores in the Mid- Atlantic region. When Energy Transfer Partners LP (ETP) bought the assets of Sunoco in 2012, there was widespread speculation that ETP would either sell or spin off the retail assets of Sunoco and focus on its pipeline, storage and processing business. The MACS acquisition clearly dispelled those rumors, at least for the moment. MACS had previously entered into an agreement with Circle K in 2012 to become a “brand developer” for Circle K, and the conversion of all of the MACS stores targeted for conversion to Circle K had been completed prior to the consummation of the acquisition. It is unclear how Sunoco will handle the Circle K branding agreement going forward.
Western Refining Inc.
Western Refining Inc., an independent refining and marketing company based in El Paso, Texas, entered into an agreement to acquire the ownership interests of ACON Investments and Texas Pacific Group (TPG) in Northern Tier Energy LP for a total consideration of $775 million. Northern Tier Energy’s assets consist of the St. Paul Park Refinery in St. Paul Park, Minn.; other midstream assets; and the SuperAmerica retail assets of the company, consisting of 163 company-operated c-stores and 74 franchised stores located primarily in Minnesota and Wisconsin.