A Look Inside the M&A Strategy of CST-CrossAmerica
Execs detail ideal acquisition candidates, markets, more
SAN ANTONIO -- With a “long runway M&A opportunities,” CST Brands Inc. and CrossAmerica Partners LP have as many as 20 deals in their acquisition pipeline, Bonnie Herzog, Wells Fargo Securities LLC managing director of beverage, tobacco and convenience store research said following a meeting with the leaders of the two companies.
Herzog met with CST CEO Kim Lubel and CFO Clay Killinger and CrossAmerica outgoing CEO Joe Topper and incoming president Jeremy Bergeron.
CrossAmerica's general partner, CrossAmerica GP, is a wholly owned subsidiary of CST Brands. The companies’ strategy leverages the strengths of CrossAmerica on the supply side and CST on the operations side. CrossAmerica owns the real estate and supplies the fuel and CST Brands operates the stores. Previous deals have included Nice N Easy Grocery Shoppes' 77 convenience stores in New York; Landmark Industries' 22 Timewise convenience stores in Texas; and Erickson Oil Products' 64 Freedom Valu convenience stores in Minnesota, Michigan, Wisconsin and South Dakota.
In terms of organic growth, CST the company also plans on building more new-to-industry (NTI) convenience stores in 2015--between 35 to 40 new locations in the United States and another 10 to 12 new locations in Canada this year. "We expect this level of organic growth to continue in future years supported by our partnership with CrossAmerica as we expand into new markets," Lubel said in early March during the most recent earnings call.
Subject to market conditions, the companies are targeting $150 million to $200 million in third-party acquisitions a year, they told Herzog.
CST's ideal acquisition candidates include 50 to 70-store chains in the $50 million to $100 million price range with “real property owned.” The stores will be 3,000-to-4,000-square-foot units with the potential for stronger fuel volumes, in geographic locations with strong economies.
It “is actively seeking regional diversification,” including locations in the Upper Midwest and Canada. “Going forward, NTI builds may be geographically contiguous to newly acquired chains,” they said.
The emphasized, too, that “CST remains committed to establishing its reputation as an acquirer of choice and leveraging the ‘personal connection’ and shared cultures of CST and small regional chains.”
“We came away incrementally more positive on both companies and continue to believe that the partnership has created a stronger, more efficient capital structure to accelerate acquisitive and organic growth, feeding the virtuous circle of growth via the MLP [master limited partnership],” said Herzog.
Topper announced in late March that he would was stepping down immediately as CEO of CrossAmerica, succeeded by Bergeron and retiring officially on September 30.
“Topper's leadership will be missed,” Herzog said. “However, we remain positive in our outlook for [CrossAmerica] given the deep management bench at the partnership and CST. Once Mr. Topper retires, he will still have input in the MLP's strategic direction as a board member and large investor of both [CrossAmerica and] CST.”
She also said that David Hrinak, CrossAmerica's COO, will continue that role, while Mark Miller and David Sheaffer have resigned as CFO and CAO, respectively. Killinger will serve as the CFO of both CrossAmerica and CST.
Formed in 2012, Allentown, Pa.-based CrossAmerica is a publicly traded MLP formed to engage in the wholesale distribution of gasoline and diesel motor fuels and to own and lease real estate used in the retail distribution of motor fuels. It distributes fuel to more than 1,100 locations and owns or leases nearly 750 sites in 21 states.
CST Brands, San Antonio, is one of the largest independent retailers of motor fuels and convenience store merchandise in North America. It has approximately 1,900 Corner Store convenience stores and gas stations throughout the Southwest, New York and eastern Canada.