Industry View: Q2 and Q3 2016 M&A Review

SCOTTSDALE, Ariz. -- There were a number of very visible and significant transactions in the past six months. This follows on the heels of an extremely active 2015.

As everyone in the industry knows, store-level financial performance has generally been very strong for the past 12 to 24 months. The combination of low oil prices and robust inside sales has resulted in very good numbers in terms of store EBITDA (earnings before interest, taxes, depreciation and amortization).

In terms of merger and acquisition activity, that has been both a blessing and a curse. With the very high purchase-price multiples that we have witnessed in the past 24 months or so, many operators have concluded that they will continue to “ride the wave” of great profits and assume (rightly or wrongly) that they will be able to decide when and how to sell their company in the future at the same record purchase-price multiples. Time will tell whether that will be true.

Obviously, there are a few transactions that clearly stand out from the others. The recent announcement that Alimentation Couche-Tard will purchase CST Brands Inc. was a game changer for the industry. The second transaction that got a great deal of attention was 7-Eleven’s purchase of CST Brands' California portfolio of 79 stores for $408 million. A third is the acquisition of Mapco Express Inc. by Compania de Petroleos de Chile S.A. for $535 million. The emergence of a new foreign player in the industry was certainly surprising. There were a number of other significant transactions, but probably none as visible or noteworthy as those three. Let’s take a look ...

Alimentation Couche-Tard, the parent company of Circle K, has been on an acquisition binge in the United States and overseas during the past several months. In May, the company completed the acquisition of A/S Dansk Shell’s downstream retail business in Denmark. This acquisition included 286 company-operated stores, 153 company-owned and dealer-operated stores and 44 dealer-owned and dealer-operated stores, as well as 211 automated sites.

In June, Couche-Tard signed an agreement to purchase the majority of the assets under the Premium 7 brand from Sevenoil Est OU in Estonia. The Estonian assets comprise 23 sites, including 11 full-service gas stations with convenience stores and 12 automated fuel stations.

And in its biggest deal ever, Couche-Tard agreed to purchase CST Brands Inc. for $4.43 billion. CST Brands has more than 2,000 locations throughout the Southwest United States, with a presence in Texas, Georgia, the Southeast, New York and eastern Canada. With the acquisition of CST, Couche-Tard is also gaining CrossAmerica Partners LP, a master limited partnership that is controlled by CST Brands. CrossAmerica distributes motor fuel to more than 1,000 locations in the United States. In order to avoid antitrust issues, Couche-Tard entered into an agreement with Parkland Fuel Corp. of Red Deer, Alberta, to sell certain CST Canadian assets after the merger for approximately $750 million. The all-cash transaction represents a price of $48.53 per share, or a premium of 42% to CST’s closing share price March 3. The company announced that it would establish a new business unit in San Antonio.

Finally, in August, Couche-Tard announced that it has agreed to purchase 53 Cracker Barrel convenience-store locations in the Baton Rouge, La., market held by American General Investments LLC and North American Financial Group LLC.

In August, COPEC entered into a definitive agreement with Delek U.S. Holdings for its U.S. subsidiary to acquire a 100% equity interest in Mapco Express Inc. for $535 million. Mapco has 348 corporate-owned convenience stores operating primarily in Tennessee, Alabama and Georgia, with additional presence in Arkansas, Virginia, Kentucky and Mississippi. It also provides fuel to 142 dealer locations and provides logistical fuel transportation to Mapco and third parties.

In July, 7-Eleven Inc. closed on its purchase of 79 convenience stores in California and Wyoming from CST Brands Inc. for a purchase price of $408 million. In addition, the parent company of 7-Eleven, Seven & I Holdings Co., announced plans to significantly expand the number of stores in North America to 10,000 by fiscal 2019. 7-Eleven has a network of 8,900 stores in the United States and Canada.

In June, Sunoco LP completed its acquisition of the retail convenience-store business of Watertown, N.Y.-based Valentine Stores Inc. for $76.4 million. The transaction included 18 company-operated Nice N Easy Grocery Shoppes locations that sell approximately 20 million gallons of fuel annually. The assets also included several quick-service-restaurant locations and three tracts of land for future store development.

The company also completed the acquisition of the Rattlers convenience-store assets and wholesale fuel business from Kolkhorst Petroleum Inc. of Navasota, Texas, for an undisclosed price. The transaction included 14 company-operated locations and wholesale fuel supply contracts for a network of independent dealer-owned and dealer-operated locations in the Austin, Houston and Waco, Texas, markets. The business distributes approximately 46 million gallons of retail and wholesale fuel annually under various fuel brands. Sunoco also acquired five fee and nine leased properties related to the retail business.

In August, Sunoco agreed to purchase six convenience stores and fuel supply contracts with 127 wholesale dealers and 500 commercial customers in eastern Texas and Louisiana from Denny Oil Co. Inc. for approximately $55 million. The stores are located in the metropolitan areas of Dallas and Houston, and in Louisiana.

In April, Global Partners LP announced that it was selling 86 convenience stores in the Northeast that it deemed to be nonstrategic. Of the total, 22 are in Massachusetts, 12 are in New York, eight each are in Maine and New Hampshire, five are in Rhode Island and three are in Maryland. The sites operate under several fuel brands; 51 are owned in fee and the remainder are leased. NRC Realty & Capital Advisors LLC, Chicago, was engaged by Global to handle the sale.

Global also completed the acquisition of 22 retail convenience stores with gas in western Massachusetts through long-term leases with O’Connell Oil Associates Inc.

In August, the company completed the sale of 30 nonstrategic convenience stores in New York and Pennsylvania to Mirabito Holdings Inc. for approximately $40 million. The transaction included long-term supply contracts for branded and unbranded gasoline and other petroleum products.

In July, CrossAmerica Partners LP entered into an agreement to acquire certain assets of State Oil Co. of Libertyville, Ill., for $45 million. The assets consisted of 59 fee sites, including 55 lessee dealer accounts, 25 independent dealer accounts, three company-operated locations, two nonfuel sites and certain other assets. The locations, all but one of which are in the Chicago area, sell more than 60 million gallons of fuel annually through supply agreements with various major oil companies. The transaction closed in September.

In April, TravelCenters of America LLC completed its acquisition of 17 QMart convenience stores in Wisconsin from fuel and lubricants distribution and transporter Quality State Oil Co. Inc. In June, the company completed the acquisition of five convenience stores in central Illinois. TravelCenters operates 253 full-service travel centers in 43 states and Canada, principally under the TA and Petro Stopping Centers travel-center brands, as well as more than 228 convenience stores in 11 states, principally under the Minit Mart brand.

• Empire Petroleum Partners LP. Empire Petroleum Partners acquired the wholesale distribution rights of Triple A Fuels Inc., a Dallas-based distributor that supplies branded fuel to gas stations primarily in the Dallas-Fort Worth area. The company also recently closed on the purchase of 21 convenience stores with gasoline in Kansas, Missouri and Oklahoma, along with sublease and fuel-supply interest in the stores, from Sunshine Fuel LLC of Palm Beach, Fla. NRC Realty & Capital Advisors represented Sunshine Fuel in connection with the sale.
• Nouria Energy Corp. Nouria Energy Corp. acquired the assets of J&S Oil based in central Maine, consisting of 13 businesses, including eight Xpress Stop convenience stores with fuel, two Express Lube auto-service locations and three Ultra Clean car washes.
• Croton Holding Co. Croton Holding Co. acquired 52 Par Mar convenience stores located in and around southwestern Pennsylvania, eastern Ohio, West Virginia and northern Kentucky from Par Mar Oil Co. of Marietta, Ohio.
• Cary Oil Co. Nearly 10 years after exiting convenience store operations, Cary Oil Co. got back into the business by acquiring six convenience stores from Mount Airy Oil Co. The stores are located in North Carolina, and with this acquisition, the number of stores in Cary Oil’s Breeze Thru Markets subsidiary stands at 14.
• GPM Investments LLC. GPM Investments acquired 20 Jiffi Stop convenience stores in central Illinois from Smith Oil Co. of Pittsfield, Ill.
• Dunne Manning Inc. Dunne Manning closed on the purchase of the assets of District Petroleum Inc., consisting of 22 Hy-Miller convenience stores and a fuel distribution and transportation business in Ohio.
• First Coast Energy. In August, First Coast Energy acquired 20 convenience stores in North Carolina and related companies from Mountain Energy.
• BW Gas & Convenience Holdings LLC. BW Gas & Convenience Holdings, an affiliate of Beverly, Mass.-based Brookwood Financial Partners LLC, completed the acquisition of 21 convenience stores in Iowa from Kum & Go L.C.  With this acquisition, the company now owns and operates 31 stores in Iowa. BW Gas announced that it has a robust acquisition pipeline and plans to acquire 600 to 1,000 convenience stores in the United States over the next several years.

Chevron Corp. reached an agreement to sell 58 convenience stores and refining facilities in Hawaii to private-equity firm One Rock Capital Partners. The transaction included 58 retail service stations, four product distribution terminals, pipeline distribution systems and other related downstream assets. The deal includes the 58,000-barrel-per-day refinery in Kapolei and is expected to close this year.

This has been an eventful year thus far in terms of M&A activity. There are a few transactions in the works in the marketplace, but probably none of the size or scope of the three large deals mentioned previously. It appears that the industry consolidation trend will continue for the foreseeable future, albeit with one less major player in the mix as a result of the acquisition of CST Brands by Couche-Tard.

There are a number of factors that may affect future M&A activity: the presidential election in November, the Fed’s decision on whether to raise interest rates at the end of the year, the stability (or instability) of oil prices and the response of foreign and domestic oil producers. It wouldn’t take much to “move the needle” in either direction to either promote further M&A transactions on the positive side or put a damper on them on the negative side.

Although the stock market is very strong, many of the public companies in the industry, including the master limited partnerships (MLPs), are not seeing the same positive trends in their stock price. That will continue to put pressure on these companies to take some positive steps—either by increasing profits, through acquisitions or otherwise, by reducing expenses, or some combination of these methods.

The public companies certainly have a currency that they are uniquely able to access to complete acquisitions, but the question remains whether potential sellers will be interested in taking part or all of the purchase price for their companies in the form of stock.

There are usually a number of transactions that either get announced or closed during the last quarter of the year. It will be interesting to see if that trend continues and whether the current group of major industry players winds up acquiring most of the companies and portfolios that are available.

Dennis L. Ruben is executive managing director of NRC Realty & Capital Advisors LLC, Chicago. Contact him at dennis.ruben@nrc.com.