The post-COVID world has gifted the convenience-store channel an unexpected, near-term prosperity, which resulted in a relatively lackluster mergers-and-acquisitions landscape over the past year—at least for the big guys.
Midsized and regional players, on the other hand, had a more aggressive approach to M&A, taking advantage of chains having succession issues or hitting that grow-or-go crossroad.
“There is a strong market for most [buyers and] sellers, regardless of their size,” said Jesse Betzner, senior partner at Boston-based Capstone Partners. “Premium multiples are being paid for those chains that have key attributes such as high degree of scalability, regional diversification and leadership, and strong food programs.”
While nothing in 2023 rose to the scale of 7-Eleven’s purchase of Speedway’s 3,800-store chain three years ago, M&A activity increased by 2% over 2022, according to Capstone Partners, with a majority of the 51 announced or completed transactions being of store counts below 50.
“All signs point toward the M&A tailwinds continuing for the remainder of 2024 and beyond.” —Jesse Betzner, Capstone Partners
That said, 2023 was not without its head-turning deals. Two equally sized industry stalwarts joined to become an 817-store titan, with Salt Lake City-based Maverik buying Des Moines, Iowa-based Kum & Go in a deal that surprised many industry watchers. Chicago-based bp purchased TravelCenters of America, Westlake, Ohio, boosting its network by another 280 truckstops. Then Franklin, Tennessee-based MAPCO saw itself cut in two after selling off to Laval, Quebec-based Alimentation Couche-Tard (Circle K’s owner) and Lawrenceville, Georgia-based Majors Management in separate deals.
So, while the chain rankings for CSP’s annual Top 202 countdown of industry operators have remained stable, the potential for lower interest rates, succession issues and the resilience of the convenience business model all signal potential for change.
The segment of the industry called “strategic acquirers” is already in the process of acquiring assets going into 2024, infusing synergies, enhancing store offers and entering high-growth regions. And they’re using credit facilities, bank relationships or just plain old cash to initiate valued transactions.
Case in point is Irving, Texas-based 7-Eleven’s agreement this past January to acquire 204 stores from Dallas-based Sunoco, which includes Stripes c-stores and Laredo Taco Co. restaurants for an enterprise value of $950 million.
“All signs point toward the M&A tailwinds continuing for the remainder of 2024 and beyond,” Betzner said.
Big Buy Breakdown
In 2023, more than 1,000 convenience stores changed hands. While circumstances always differ from deal to deal, most successful transactions provide beneficial outcomes for both the buyer and the seller.
In the case of Maverik and Kum & Go, motivations and circumstances found common ground. Both chains had solid, regional dominance and maintained strong, successful brands. As Mitch Morrison previously reported in a CSP column, owners of the 400-store Maverik chain, the Maggelet family, received an influx of cash from partial ownership in the Knoxville, Tennessee-based Pilot network of travel centers. The investment conglomerate, Berkshire Hathaway, Omaha, Nebraska, had secured full ownership of Pilot Travel Centers LLC this past January, providing the Maggelets with a considerable windfall.
Meanwhile, the Krause family, owners of the Kum & Go chain, were shifting in their priorities, Morrison wrote. Its leadership wanted to invest more heavily into, among other things, soccer teams in Iowa and abroad.
With the Maggelet’s newfound liquidity and the Krause’s shifting priorities, the two firmly established operations struck the approximately $2 billion deal, with Maverik agreeing to keep Kum & Go’s 5,000 associates. The Kum & Go brand, however, appears to be on its way out. Sources told CSP that Maverik decided to retire the Kum & Go brand by 2025. Maverik’s official statement on the matter is: “Market research as well as the results from Maverik’s initial rebranded stores that began in January across Maverik’s overlapping states including Utah, Colorado, Idaho, and Wyoming will help guide future branding decisions.”
Another significant acquisition in 2023 was bp’s $1.3 billion purchase of TravelCenters of America, bringing the company 280 locations across major U.S. highways and doubling its global convenience gross margin, according to bp statements. The acquisition would also provide opportunities for electric-vehicle (EV) charging and renewable natural gas businesses.
A third major deal came in two parts, with the dismantling of MAPCO Express Inc. In the transaction, 112 stores went to Couche-Tard and its Circle K network, and the remaining 192 stores went to Mountain Express. The purchase was transformative for Mountain Express, considering it had 166 locations in CSP’s Top 202 ranking for 2023.
But for Couche-Tard, it was one of many acquisitions it made in 2023. In addition to the MAPCO sites, the Circle K parent bought 44 Big Red Stores from Summerwood Partners LLC, Bryant, Arkansas, and 11 stores from Dion’s Enterprises, Key West, Florida.
Other established industry acquirers made moves in 2023. Among these were Ankeny, Iowa-based Casey’s General Stores purchasing 63 locations from EG America, Westborough, Massachusetts; Richmond, Virginia-based GPM Investments buying 135 stores from Transit Energy Group, Greenville, South Carolina; and Global Partners, Waltham, Massachusetts, acquiring 64 facilities from Landmark Corp., Houston.
These transactions occurred despite uncertain economic times, signaling strong interest from all segments of the industry.
Robust-Yet-Uncertain Economy
A year and a half after the Biden administration declared the end to the COVID-19 pandemic, the economic landscape for c-store operators remains a confluence of clashing trends. Stubbornly high inflation exists alongside historically high fuel margins. Low unemployment has been paired with rising labor costs. And any buy-or-sell intentions must fight interest rates higher than they were before the pandemic.
At press time, interest-rate projections were between 5.3% and 5.5%, a 23-year high, according to New York-based Bankrate. The Federal Reserve had raised it 11 times in the year and a half since COVID to battle back skyrocketing inflation triggered by the pandemic.
Today, high inflation rates persist, lingering at 3.5%, according to the U.S. Inflation Calculator, Washington, D.C. While half the size of its 7% peak in 2020, the inflation rate was a mere 1.4% before COVID. This past spring, the Federal Reserve decided not to go forward with a planned cut in interest rates, due to a slight but unexpected increase in the rate of inflation. They did not indicate when or if they intend to cut rates in the future.
“Interest rates … affect the ability to buy,” said Dennis Ruben, executive managing director, NRC Realty & Capital Advisors, Chicago. “You’ve got to borrow more money to buy a little less.”
While rising interest rates can increase the cost of borrowing, it also has a considerable impact on multiples, Ruben said. Double-digit multiples for large-scale acquisitions are going to be fewer and farther between.
“I’m not seeing double-digit multiple deals,” Ruben said. “More likely [higher] single digits … We saw a couple of low, double digits 24 to 36 months ago, with 12-to-14 multiples.”
But such pressure has had little impact on the ability of larger consolidators with cash on hand and established credit facilities to execute on acquisitions, said Roger Woodman, Managing Director of Raymond James, Atlanta. “While private equity sponsored transactions have slowed given the increase in financing costs, strategic buyers with strong balance sheets and profits supported by elevated gas margins are doing deals.”
Indeed, Couche-Tard funded its recent purchase of 112 MAPCO stores from Compañía de Petróleos de Chile S.A., Santiago, Chile, for a cash consideration of $468.6 million. Then in Europe last year, Couche-Tard made a similar move with the addition of 2,175 sites from Paris-based TotalEnergies SE, for a total cash consideration of approximately $3.8 billion.
“[Couche-Tard] would love to do more in the U.S., which is probably our best market for synergies, and then being opportunistic in Canada and Europe,” said Brian Hannasch, president and CEO of Couche-Tard, in its fiscal third-quarter 2024 earnings call. “The deal flow has been good, probably the best I've seen in four or five years in terms of the number of opportunities that are out there in front of us.”
“Interest rates … affect the ability to buy. You’ve got to borrow more money to buy a little less.” —Dennis Ruben, NRC Realty & Capital Advisors
High interest rates appear to be working in Couche-Tard’s favor, with Hannasch saying they feel less competition from the private-equity space than in the past three years. “That’s why we continue to be pleased that we’re investment grade and have a balance sheet that’s ready for almost any opportunity that’s out there in front of us.” Hannasch said. "So, our appetite is there, and we're actively looking at some things."
Midsized Players
More to the point, Woodman said, is asset quality. Buyers with a history of successful transactions can factor in interest rates to achieve a higher priority of strategic expansion.
“We have found that a lot of local and regional operators with strong bank relationships are investing in growth and finding opportunities to win transactions,” Woodman said.
Here’s a quick list of several midsized retailers making acquisitions in 2023:
- Blarney Castle Oil Co., Bear Lake, Michigan, acquired assets from Alpena Oil Co., Alpena, Michigan, including six Louie’s Fresh Market full-service grocery stores, 14 traditional convenience stores and one cardlock.
- Kent Kwik Convenience Stores, Midland, Texas, purchased the assets of Tom Thumb Food Stores Inc., Hialeah, Florida, which included 14 company-owned Tom Thumb Food Stores and three Subway franchise locations which span from Fort Lauderdale to Key West.
- Love’s Travel Stops, Oklahoma City, acquired the EZ GO chain from Carey Johnson Oil Co. of Lawton, Oklahoma, which included six truck stops located on Oklahoma turnpikes and 11 convenience stores in Oklahoma and Nebraska, for a total of 22 stores.
- Nouria Energy Corp., Worcester, Massachusetts, acquired the assets of H.A. Mapes Inc., Springvale, Maine, which included 13 owned locations and nine stores previously branded Harry’s, as well as other dealer locations.
- Par Mar Oil Co., Marietta, Ohio, acquired Wooster, Ohio-based Santmyer Companies, Inc.’s 14 Red Rover convenience stores.
- S&S Petroleum Inc., Mukilteo, Washington, acquired Leathers Enterprises Inc., a Shell-branded marketer and convenience retailer based in Portland, Oregon. The transaction includes Leathers Enterprises’ 23 convenience stores in Oregon, nine of which are company-operated and 15 are managed through dealer consignment agreements.
- Tri Star Energy, Nashville, purchased 54 convenience stores owned by Union City, Tennessee-based Cox Oil, 52 are company-operated and two are dealer-operated. Twenty-one of the stores sell fuel under the Marathon brand, 13 sell fuel under the Shell brand and 20 are unbranded.
While midsized chains will play a role in M&A for the remainder of 2024 and beyond, Ruben of NRC said the larger picture remains murkier. For many buyers, part of the game is making their portfolio profitable. Hence, the job of rationalization.
A recent deal for Ruben meant the sale of a chunk of a retailer network to one buyer and then selling the rest as one-offs. He said the single-store block received more than 300 bidders. “There’s an appetite for convenience stores with smaller players,” Ruben said. “And there will be more rationalization of portfolios from chains large and small.”
Can't Sell Love
Whether selling a single store or an entire network, the math around M&A today falls back to repair and maintenance or repairs and maintenance costs, said Steve Morris, president and CEO of Retail Management Inc., St. Paul, Minnesota. The hurdle of return on investment is high, he said, considering the amount of work needed on tanks, dispensers, parking lots, roofs, floor tile, the list goes on.
“A lot of what’s out there is nearing the end of life or the end of [return on investment],” Morris said. “[They’re] hard to buy and harder to run. You need to find someone who wants to do the replacement and overcome the operating costs. That’s a big capital process. Most times, these sites are just abandoned.”
“A lot of what’s out there is nearing the end of life." —Steve Morris, Retail Management Inc.
Another part of the problem is perspective. Morris said many sellers are reaching retirement age and don’t have another generation to give their business to. In situations where people are looking to sell, they may overvalue their businesses, in part, because they spent their lives running the stores.
“People think there’s value because of a lifetime of personal investment,” Morris said. “And the market said there’s no business value to all that love.”
A Complex Future
One seemingly foreboding trend for the value of the larger convenience model itself would be electric vehicles. The movement presents an obvious threat if or when a large-scale rollout occurs, as a major part of the channel’s business is fossil fuel. For Morris, the saving grace is the nation’s love for their gasoline-burning engines.
With the average age of a car being 10 years, Morris said that even if California-style clean-air restrictions came into play today, gasoline-burning cars would still be on the road for the next decade. In addition, the EV-fueling model still must solidify. Currently, c-stores and gas stations aren’t built for the kind of time required for a car to sit docked at a charging station.
“Do you think [c-store chain] Buc-ee’s can build locations with 100 fuel dispensers all across the country because you think it’s going to go away?” Morris said. “Those are 30-year investments for them.”
A typical investment would be more in the 20-year range, Morris said, where the first 10 years is about paying off the location and the next 10 about clear profit.
Going forward, retailers can consider relatively inexpensive investments inside the store to improve the value of their businesses, Morris said. Here are his top three:
- Vape: With major tobacco companies creating their own vaping options, retailers can consider a revamp of their backbar. Many still have equipment installed over 20 years ago, Morris said.
- Drink machines: The price on several high-tech drink-making machines has come down dramatically over the years. Retailers have an opportunity to break into new types of beverages at a far lower price point.
- Self-checkout: With labor becoming an issue, the cost of self-checkout technology has fallen to a more manageable range. This option may provide retailers the chance to save on labor costs, while still providing shoppers with a convenience checkout experience.
Others agree with Morris’ generally optimistic outlook for the industry.
Woodman of Raymond James, said when the Federal Reserve starts lowering interest rates, deal activity will increase. “Demand is going to support premium valuations for higher quality operators,” Woodman said.
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