Analysis: Where Will Couche-Tard Grow Next?

Will fast-growing chain defer to Europe over U.S. for acquisitions?

Steve Holtz, Editor in Chief, CSP Daily News

Upon completion of the Statoil acquisition, the Scandinavian
company will account for 40% of Couche-Tard's EBITDA.

OAK BROOK, Ill. -- Seldom does an earnings call or news conference with an Alimentation Couche-Tard executive pass without someone--a reporter, an analyst, an investor--asking about the acquisition environment and when the next big deal might go down. Of late, the Canada-based company, parent of the Circle K convenience-store chain, has asked for patience.

Slower growth isn't for lack of trying, as evidenced by the company's unsuccessful hostile takeover effort of Casey's General Stores in the Midwest (click here for previous CSP Daily News coverage).

"There is more competition on that front in the U.S. lately," CEO Alain Bouchard said in March. "Multiples are high, higher than what we would like to see. We missed some major oil market disposals because of them being just too pricy."

The fact is, since the beginning of Couche-Tard's fiscal 2012, the corporation has signed agreements for the acquisition of 227 company-operated stores, 243 stores operated by independent operators and 80 motor fuel supply agreements, making it the company's third-most-active acquisition year in almost a decade. But when you're one of the major acquirers on the block, a public chain with a reputation for almost routinely buying hundreds of stores a year, people always want more.

And they got it yesterday as Couche-Tard made good on a longtime promise to enter the European market. The North American retail giant announced plans to buy Scandinavian retailer Statoil Fuel & Retail for $2.8 billion, as reported in a Morgan Keegan/CSP Daily News Flash. The purchase includes a broad retail network across Scandinavia, Poland, the Baltics and Russia with approximately 2,300 full-service (fuel and convenience) or automated (fuel only) stations.

"Moving into Scandinavia and Europe is an important step in implementing Couche-Tard's growth strategy," Alain Bouchard, president and CEO of Couche-Tard, said in a press release.

CFO Raymond Pare said in a press conference yesterday morning that the purchase serves as a perfect jumping off point for entering a new country, providing scale and infrastructure from which to grow.

Couche-Tard will pay a healthy seven-times EBITDA (earnings before interest, taxes, depreciation and amortization) for the company, according to Pare.

Read more in this issue of CSP Daily News.

But while the Statoil acquisition offers an intriguing tale of a multinational corporation becoming multicontinental—a rarity in the c-store industry—much of the focus remains on North America and the United States:

*Does Couche-Tard see limited growth opportunity in the United States; is that why it's reaching out to Europe?

*Will the $2.8-billion expense of the Statoil acquisition and the opportunity to grow in Europe further quiet Couche-Tard's acquisition activity in North America?

The answer to both questions appears to be "no."

Bouchard has said many times that exploring Europe for growth is an additional opportunity, not a replacement for North American growth. However, he has also conceded that there are challenges to growing in the United States right. In addition to the aforementioned competition and high multiples, he said in March, "In the U.S., there are opportunities on small acquisitions: 10, 20 stores at a time. Nothing big though."

Still, he noted, the company is continuously reviewing sale offers and is prepared to strike when the right properties come along at the right price.

Meanwhile, Pare said yesterday that there will be a "period of deleveraging" following the close of the Statoil deal, anticipated for June.

He noted, however, that Couche-Tard is optimistic that the Statoil acquisition "will be immediately and significantly accretive" to the company, thus shortening the deleveraging time period and opening the door to additional growth here and abroad.

"Following this acquisition, our focus will be to deleverage this company at a point where we feel that we regain [our liquidity] in order to be able to benefit from the future growth that will be available," he said. "That puts us in a position to be a very strong operator in North America and also in Europe. [This Statoil deal] gives us a powerful and growing presence in high-growth markets of central and eastern Europe. And we feel that that will be an interesting growth platform going forward."

He added that Couche-Tard will slow down some capital projects to help rebuild the balance sheet.

Once the Statoil deal is complete, "that will be a position where we will generate very interesting levels of cash flow that will be used for sure in the near future to delverage the company quickly and regain financial flexibility. Despite the [$2.8 billion spent], the balance sheet will still be very strong. We feel that, as we always did in the past, we want to make sure that we're focusing in order to bring back a lot more flexibility in order to be able to benefit from the future opportunity that we have in front of us."

Steve Holtz, CSP/Winsight By Steve Holtz, Editor in Chief, CSP Daily News
View More Articles By Steve Holtz