Mergers & Acquisitions

CrossAmerica’s New ‘Blueprint’ for Acquisitions

Company swapping assets with Couche-Tard in a series of deals
cross america partners

ALLENTOWN, Pa. -- In a deal that will serve as a “blueprint” for future transactions, Alimentation Couche-Tard Inc. is selling 192 company-operated Circle K convenience stores in the United States to its subsidiary CrossAmerica Partners LP. In turn, CrossAmerica is selling the real estate of 56 former CST Brands Inc. c-stores leased and operated by Couche-Tard and 17 c-stores in the upper Midwest, including some Holiday Stationstores sites, to Couche-Tard.

The companies valued each asset exchange equally at $184.5 million, with no additional funding. Couche-Tard will fold the 17 upper Midwest sites into its retail network and eliminate the rent expense.

“This exchange provides further diversity to our wholesale network, a first step in our goal of simplifying the business and cash flow streams,” said Gerardo Valencia, president and CEO of CrossAmerica, on a conference call Dec. 17. “While this was a lengthy process, the approved plan allows for an easy transition of these sites from Circle K to CrossAmerica’s wholesale segment. The process we have now established will set a blueprint for any potential future transaction, which would not require as much time to implement.”

Couche-Tard will retain ownership of the 192 Circle K stores until dealers are secured to operate them. The stores will transition to CrossAmerica in “tranches,” or a series of related transactions, as dealers are brought on board. The process to identify and vet qualified dealers is already underway, with “several dozen” candidates, Valencia said. “We want to make these transactions as quickly as we can, but I am very careful about making sure that we get the right operators in place,” he said.

The companies expect the transactions to occur in the first half of 2019. The closing of each transaction is subject to customary closing conditions.

“The transactions will broaden the geographic footprint of our network and will also increase CrossAmerica’s overall fuel distribution volume while maintaining the combined purchasing scale of Circle K and CrossAmerica,” Valencia said. “We will have a competitive advantage of being able to offer Circle K franchises to the new operators of the sites, which we believe will provide an opportunity for our dealer partners to offer a well-known and consistent brand to consumers.”

CrossAmerica looked at its sites “that are the best fit for a convenience retail strategy like the one that Circle K has, so they can essentially identify the best way to capture value from those sites, whether it be invest or make some changes to those sites to be able to generate value. The ones that we have identified are the ones that are best fits for the Circle K long-term strategy for convenience retail,” Valencia said.

As for the sites CrossAmerica is picking up from Couche-Tard, most are in geographies where the company already has stores, although a few sites are in geographies where it currently does not have a presence.

“We’re making sure that the dealers understand—and I’m sure they do—that the Circle K or the Kangaroo franchise, in either case, would generate a lot of value for consumers because of both the brand presence [and] the economies of scale from a supply-chain standpoint,” he said.

The closing of each asset exchange transaction is subject to customary closing conditions.

M&A Opportunities

Regarding other acquisitions beyond the two related companies, Valencia said, “We plan to participate in the consolidation of the highly fragmented convenience and fuel retailing industry, and we continue to believe that there will be opportunities for us in the coming years.”

“We are continuing to look at other transactions outside in the market, but we want to make sure that we’re very disciplined with those,” he said, indicating that CrossAmerica is monitoring some deals even this week. “I want to make sure that we are careful about the quality of the assets that are being sold or that we have the discipline to make sure that we’re not exposing ourselves to pay the high multiples that we are seeing in some places. We’re definitely looking at opportunities and just making sure that we find the right ones, and that we can find an appropriate valuation for what we believe the asset should be worth.”

Allentown, Pa.-based CrossAmerica is a wholesale distributor of motor fuels and owner and lessor of real estate used in the retail distribution of motor fuels. Its general partner CrossAmerica GP LLC is a wholly owned subsidiary of Couche-Tard. Formed in 2012, CrossAmerica distributes branded and unbranded fuels in the United States to approximately 1,300 locations and owns or leases approximately 900 sites. With a geographic footprint covering 31 states, CrossAmerica has relationships with oil brands such as ExxonMobil, BP, Shell, Chevron, Sunoco, Valero, Gulf, CITGO, Marathon and Phillips 66.

Laval, Quebec-based Couche-Tard’s network comprises 9,943 c-stores in North America under 19 business units, including 15 in the United States covering 48 states and four in Canada covering all 10 provinces. It is No. 2 in CSP’s 2018 Top 202 ranking of c-store chains by number of U.S. company-owned retail outlets. Its network includes approximately 8,350 c-stores in the United States under the Circle K, Holiday and other brands. It has a total worldwide network of about 16,000 stores.

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