Why Couche-Tard Passed on Recent Major Acquisitions

As multiples rise with mega-deals, industry's third-largest chain stays cautious

Samantha Oller, Senior Editor/Fuels, CSP

Alain Bouchard Alimentation Couche-Tard (CSP Daily News / Convenience Stores)

Alain Bouchard

LAVAL, Quebec --Marking its sixth year of solid increases in net earnings, Alimentation Couche-Tard Inc. continues to be cautious in how it invests in growth. This is especially true in light of recent mega-deals that have called into question whether what was the second-largest U.S. convenience store chain is still serious about being a major acquisition contender.

In opening remarks during the company's fourth-quarter earnings call, president and CEO Alain Bouchard said that Couche-Tard is in a good financial position and is actively considering acquisitions of various sizes, although he declined to share specifics. He acknowledged that the company was a suitor in recent opportunities, including the Hess retail network, which sold to Marathon Petroleum Corp.'s Speedway LLC subsidiary for $2.874 billion in May, effectively making Speedway the second-largest c-store chain in the country.

"We were involved in deals recently that we did not get, but considering the importance of the multiple involved, we are satisfied with our decision and offers," said Bouchard. "It is sometimes better to pass and keep our capacity for future deals."

He added that the company does not feel any pressure to acquire for acquiring's sake, with the "catalyst for growth" already baked into its strategy.

"Despite some multiples that were over our expectation, we believe we could still see deals at reasonable multiples," said Raymond Pare, vice president and CFO. While acknowledging the building pressure and flurry of activity in the United States, Pare added that Canada "could also be an interesting market in terms of acquisitions."

Couche-Tard also plans to greatly accelerate its new build program and tap into its growing land bank of real estate over the coming year.

In the United States, Couche-Tard's Circle K subsidiary saw strong same-store merchandise sales growth of 4.4%, with its fresh-food initiative beginning to help drive gross-margin dollars. The Sunbelt states--in particular, California, Arizona and Florida--have seen the most robust growth as the construction industry revives.

COO Brian Hannasch observed that the growth trend should be sustainable for the medium term. "We sell time," he said. "The consumer trends are improving in traffic and consumer confidence. As time becomes more valuable, people have jobs and discretionary income, we think convenience will become more relevant."

Execs believe the company is outperforming the industry in North America and Europe, and has strong growth opportunities in Asia as the Circle K brand expands to its 13 country thanks to a new licensee agreement in India.

As of April 27, 2014, Laval, Quebec-based Couche-Tard's network included 6,241 convenience stores throughout North America, including 4,756 stores with motor fuel dispensing. Its North American network consists of 13 business units, including nine in the United States covering 39 states and the District of Columbia (under the Circle K brand) and four in Canada (under the Mac's and Couche-Tard brands) covering all 10 provinces.

In Europe, Couche-Tard operates a broad retail network across Scandinavia (Norway, Sweden and Denmark), Poland, the Baltics (Estonia, Latvia and Lithuania) and Russia, which comprised 2,258 stores as at April 27, 2014. Also, under licensing agreements, about 4,600 stores are operated under the Circle K banner in 12 other countries (China, Guam, Honduras, Hong Kong, Indonesia, Japan, Macau, Malaysia, Mexico, Philippines, Vietnam and United Arab Emirates) which brings to more than 13,100 the number of sites in Couche-Tard's network.

Part of CSP's 2014 Convenience Top 101 retailers