Mergers & Acquisitions

CST, CrossAmerica Position for Acquisitions

Leveraging respective strengths, partners could be looking at as many as 20 deals

SAN ANTONIO -- During their fourth-quarter 2014 earnings call--the first joint call--Kim Lubel, chairman, president and CEO of CST Brands Inc., and Joe Topper, president and CEO of CrossAmerica GP LLC, talked extensively about acquisition opportunities and new-to-industry (NTI) convenience stores.

CST CrossAmerica (CSP Daily News / Convenience Stores / Gas Stations)

"There is still an ample supply of companies that are interested in selling. The process is still vigorous out there," said Topper. "We still are maintaining our model of six to eight multiples for acquisitions, and there's still a number of transactions that are available to us in that marketplace. … And we find accretive transactions in that marketplace that work for us, both for CST and for CrossAmerica."

There are "more than one and less than 20 transactions that we're looking at right now," he teased.

"The fact that we had three deals announced in the fourth quarter in December alone really reflects the opportunities that we have together," Lubel said of the CST-CrossAmerica partnership, describing it as a "filter."

With the strengths of CrossAmerica on the supply side and CST on the operations side, what "CrossAmerica and CST bring to the table together really positions us well to be very disciplined in our approach, and there's plenty of opportunities. And I think we've the opportunity to be disciplined and choose the ones that fit us best."

Those deals--with CrossAmerica to own the real estate and supply the fuel and CST Brands to operate the stores--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. CrossAmerica's general partner, CrossAmerica GP, is a wholly owned subsidiary of CST Brands.

"As you can see by the acquisitions that we ended up with … we're getting strong retail networks," said Lubel. "These acquisitions help showcase the combined strength of CST's retail operations and CrossAmerica's wholesale operations and this advantaged financial structure."

Further, Nice N Easy and Erickson Oil brought the company "new markets to possibly expand our new-store development efforts," she said.

Lubel also offered an update on CST Brands' network optimization plan for the potential sale of approximately 100 non-core stores. In the fourth quarter, the company closed on the sale of 71 sites. It expects to close on the sale of an additional 10 stores in the first quarter.

Meanwhile, it achieved its goal of opening up 38 NTI stores in the United States and Canada. "We've now opened 60 NTI stores in just the last two years," she said.

The company also plans on building more new stores in 2015--between 35 to 40 new stores in the United States and another 10 to 12 new stores 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," said Lubel.

She continued, "In addition to strong organic growth together with CrossAmerica, we'll continue to look for opportunistic acquisitions."

As for financials, for the three months ended Dec. 31, 2014, CST Brands reported net income of $94 million, compared to $34 million in 2013. Net income for the year ended Dec. 31, 2014, was $200 million. For the same period in 2013, net income was $139 million.

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.

CrossAmerica Partners, Allentown, Pa., is a leading wholesale distributor of motor fuels and owner and lessee of real estate used in the retail distribution of motor fuels. Formed in 2012, CrossAmerica Partners distributes fuel to more than 1,100 locations and owns or leases nearly 750 sites in 21 states.

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