Insider’s View: 2015 M&A Year in Review

How will market turmoil affect acquisition multiples and activity in the coming year?

Dennis L. Ruben, Executive Managing Director, NRC Realty & Capital Advisors LLC

m&a year in review

SCOTTSDALE, Ariz. -- The year 2015 represented another extremely active year in terms of merger-and-acquisition activity in the convenience-store industry. Although it seemed inconceivable at the beginning of the year that the pace of acquisitions that occurred in 2014 could be sustained, the number and size of acquisitions that were either announced or closed in 2015 demonstrated the strength of the acquisition marketplace and the voracious appetite for quality assets and companies by the leading industry participants.

With purchase-price multiples at all-time highs, and in many instances, double-digit multiples for larger, strategic acquisitions, owners of companies who have not generally been interested in selling their companies took another look at their options, and, in many cases, decided that the prices were too good to pass up.

However, it does not appear likely that these lofty multiples will continue for much longer, if at all. Interest rates are starting to rise, and low oil prices are taking a toll on the stocks of most of the master limited partnerships (MLPs) and their affiliates, as well as other industry-related stocks.

It seems likely that this market turmoil will adversely affect purchase-price multiples, as well as the number and type of acquisitions that get done in the near future. More importantly, the ongoing consolidation of the industry and the access to capital of the larger industry players continue to make it more difficult for small- and medium-sized operators to compete effectively for quality assets and companies being sold.

During the panel I moderated at Winsight’s Outlook Conference in November on the financial and capital markets, we went back and looked at the major acquisitions of 50 stores or more that had been done within the past 24 months. Of the 28 transactions that we analyzed, 19 were acquired by tax-advantaged MLPs or their affiliates, five were acquired by major industry players (7-Eleven and Circle K), two were acquired by a private-equity firm (Fortress) and one was acquired by another retail company.

This data serves to reaffirm our view that the industry will likely continue to consolidate in the hands of five to 10 major players with experienced management teams, abundant access to capital and platforms designed for growth.

Alimentation Couche-Tard/Circle K

2015 was a busy year for Alimentation Couche-Tard/Circle K in terms of acquisitions.

In the first quarter, it completed its merger with The Pantry Inc. The all-cash transaction represented a total enterprise value of approximately $1.7 billion including debt and constituted a 27% premium over The Pantry’s closing share price on Dec. 16, 2014. Later in the year, Circle K announced that it was rebranding the 1,500 Kangaroo Express convenience stores to Circle K.

Circle K also acquired 21 Tiger Tote Food Stores and 151 dealer fuel-supply agreements in Texas, Mississippi and Louisiana from Cinco J Inc., dba Johnson Oil Co. of Gonzales, Texas.

In December, Circle K closed on the acquisition of 18 convenience stores, two freestanding Subway restaurants and a dealer fuel-supply network in southern Texas from Texas Star Investments Inc. NRC Realty & Capital Advisors, Chicago, served as exclusive financial advisor to Texas Star in connection with the sale.

Laval, Quebec-based Couche-Tard also entered into an agreement to acquire Topaz Energy Group Ltd., Ireland’s leading convenience and fuel retailer. Topaz has 464 gas stations in its network, 162 of which are owned by Topaz and 302 by dealers. The deal also includes a commercial fuels operation with more than 30 depots and two terminals. Financial terms of the transaction were not disclosed. The Topaz stores will be rebranded Circle K.

CST Brands Inc./CrossAmerica Partners LP

In early 2015, CrossAmerica Partners LP closed on the purchase of all of the outstanding shares of Hudson, Wis.-based Erickson Oil Products Inc. and certain related assets for $85 million. Erickson operates 64 convenience stores in Minnesota, Michigan, Wisconsin and South Dakota, with a concentration in the Twin Cities.

CrossAmerica Partners also acquired the One Stop convenience-store chain based in Charleston, W.Va., consisting of 41 company-operated One Stop convenience stores, four commission-agent sites, nine dealer-fuel-supply agreements and one freestanding franchised quick-service restaurant. For the year ended Dec. 31, 2014, the aggregate 54 sites, which comprised the transaction, sold approximately 36 million gallons of motor fuel and had approximately $40.5 million in inside sales.

In November, San Antonio-based CST Brands announced that it had entered into a definitive agreement to acquire all of the outstanding shares of Flash Foods Inc. of Waycross, Ga., and certain of its affiliates for $425 million. The acquisition, scheduled to close in the first quarter of 2016, includes 164 Flash Foods convenience stores, 21 branded quick-service restaurants, a land bank of 13 real-estate sites to build new-to-industry stores, a merchandise-distribution company and 90,000-square-foot distribution center, and a fuel-supply company.

Late in the year, CST Brands also announced that it was evaluating its strategic options for its California network, which consists of 76 convenience stores. The company’s California stores have historically produced strong fuel results but have underperformed in terms of inside-store sales and gross profit dollars due to the small average store and lot size.


By Dennis L. Ruben, Executive Managing Director, NRC Realty & Capital Advisors LLC
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