Insider’s View: 2018 M&A Year in Review

SCOTTSDALE, Ariz. -- The year 2018 will probably be remembered as the year of the megadeal. Several very large transactions were completed last year: 7-Eleven completed its largest acquisition ever, Kroger sold off a majority of its convenience-store units and more.

But the most important takeaways are that it was the year of the entry of new foreign players in the U.S. convenience-store industry and the re-emergence and expansion of major-oil companies in retail c-store operations.

In perhaps the biggest surprise of the year, EG Group, based in the United Kingdom, purchased all of Kroger’s 762 convenience stores in the United States, and then followed that up with the acquisition of 225 Minit Mart c-stores from TravelCenters of America. Those two transactions amounted to an aggregate purchase price of $2.5 billion.

A second foreign player, Enex, a subsidiary of Chilean conglomerate Quinenco, came on the scene by purchasing 38 travel centers from Road Ranger for $289 million.

The second major development last year was the increasing role played by major-oil companies in retail stores. Marathon Petroleum Corp. completed its merger with Andeavor, creating the largest refiner in the country. Later in the year, Speedway LLC, a Marathon subsidiary, purchased 78 Express Mart locations in New York.

BP made the decision to re-enter the retail market and made it known that it was actively seeking acquisitions throughout the country. Most significantly, BP, acting through a joint venture with ArcLight Capital Partners, signed an agreement in December to purchase Thorntons Inc. and its network of 191 convenience stores in six states. Other major oil companies, such as Shell, have also indicated that they intend to aggressively pursue a downstream strategy, both in the U.S. and internationally.

As far as purchase price multiples are concerned, they are rarely disclosed publicly, but most industry insiders believe that the major transactions that closed in 2018 traded at double-digit multiples based on store-level EBITDA (earnings before interest, taxes, depreciation and amortization). In some cases, we have heard that multiples reached 12x to 13x EBITDA, or perhaps higher.

It also appeared that, in determining purchase price multiples, most purchasers have recently drawn fewer differentiations between leased locations and owned sites than in previous years.

There are several reasons why multiples have remained at record high levels. First, the reduction in corporate tax rates has allowed companies to offer more for transactions after factoring in the tax consequences and synergies of the transaction. Secondly, the record-low oil prices that we have witnessed in the past year or so have translated into high fuel margins and profits for operators throughout the country, regardless of region. Furthermore, the entry of new foreign players, private-equity firms interested in the industry and major oil companies has added to the bidding frenzy and has driven up purchase prices.

These new entrants have more than offset the loss of some other major industry players who have departed the industry in the last few years, either as a result of mergers or being acquired by other companies.

Here’s a look at how mergers and acquisitions played out in 2018 …

EG Group, based in the United Kingdom, made headlines in 2018 by entering the U.S. convenience-store market through two very large acquisitions.

In February, The Kroger Co. entered into a definitive agreement with EG Group for the sale of Kroger’s 762 convenience stores in 18 states for $2.15 billion. The sale was completed in April, and included the following banner names:  Turkey Hill, Loaf ‘N Jug, Kwik Shop, Tom Thumb and Quik Stop. Kroger’s supermarket fuel centers and its Turkey Hill Dairy were not included in the sale.

EG Group established its North American headquarters in Cincinnati and continues to operate the stores under their established banner names. EG Group was founded in 2001 by brothers Zuber and Mohsin Issa in Blackburn, U.K., and is a leading gasoline and convenience retailer that has established partnerships with global brands such as Esso, BP, Shell, Carrefour, Louis Delhaize, Spar, Starbucks, Burger King, KRC, Greggs and Subway. The company has more than 4,600 locations throughout various European markets, including the United Kingdom, France, the Netherlands, Belgium, Luxembourg and Italy, and now the U.S.

In September, EG Group also entered into a definitive agreement to purchase TravelCenters of America LLC’s Minit Mart c-store business for about $330.8 million. The sale, which was completed in December, included 225 convenience stores in 11 states and certain related assets.

In November, EG Group also entered into a binding agreement with Australian grocer Woolworths Group Ltd. for the sale of its 540-site Woolworths Petrol network for $1.241 billion. Woolworths Petrol operates a network of sites throughout Australia. Through June 2018, the business generated $3.46 billion in revenue and sold 951 million gallons of fuel.

In April, refiners and retailers Marathon Petroleum Corp. (MPC) and Andeavor entered into a definitive merger agreement under which MPC would acquire all of Andeavor’s outstanding shares, representing a total equity value of $23.3 billion and a total enterprise value of $35.6 billion. The transaction serves to geographically diversify the companies’ refining portfolios into attractive markets. San Antonio-based Andeavor’s refineries in California, the midcontinent and the Pacific Northwest complement Findlay, Ohio-based MPC’s Gulf Coast and Midwest refining footprint.

The combined company will be the No. 1 U.S. refiner by capacity and a top five refiner globally, with a throughput capacity of more than 3 million barrels per day. The combination will create a strong nationwide marketing portfolio, combining MPC’s strength east of the Mississippi with Andeavor’s strong presence in the western United States.

The merger transaction was approved by the shareholders of both companies in September, and the transaction was consummated in October.

In November, Speedway LLC, a subsidiary of MPC, closed on the purchase of Petr-All Petroleum Consulting Corp.’s 78 Express Mart c-store and petroleum marketing assets. The Express Mart stores are primarily in the Syracuse, Rochester and Buffalo, N.Y., markets.

In December, it was announced that a newly formed joint venture of BP and ArcLight Capital Partners has entered into a definitive agreement to purchase Louisville, Ky.-based Thorntons Inc. According to publicly released information, the agreement “complements BP’s U.S. retail business and is another step forward in the Fuels North America growth strategy.”

Subject to regulatory approval, the joint venture will continue to operate all existing stores under the Thorntons name and will retain Thorntons team members working out of the store support center in Louisville. The company operates 191 c-stores in six states: Florida, Illinois, Indiana, Kentucky, Ohio and Tennessee.

In January 2018, 7-Eleven Inc. closed on the acquisition of about 1,030 convenience stores in 17 states from Sunoco LP for $3.306 billion. In 7-Eleven’s largest acquisition to date, it acquired all of the Sunoco locations primarily along the East Coast and in Texas, as well as the associated trademarks and intellectual property of the Stripes convenience-store brand and the Laredo Taco Company foodservice brand.

As a result of this transaction, 7-Eleven owned a total of about 9,700 convenience stores in the United States and Canada. As a part of the larger transaction, Sunoco and 7-Eleven’s SEI Fuels entered into a 15-year fixed-rate take-or-pay fuel supply agreement.

In order to obtain Federal Trade Commission (FTC) approval for the transaction, 7-Eleven was required to sell 26 retail fuel outlets that it owned to Sunoco, and Sunoco was required to retain 33 fuel outlets that 7-Eleven would have otherwise acquired.

In August, Enex, a subsidiary of Chilean conglomerate Quinenco, reached an agreement to acquire Road Ranger for $289 million. Road Ranger, based in Rockford, Ill., has 38 travel centers in Texas, Illinois, Iowa, Indiana, Missouri and Wisconsin. The transaction was consummated in November.

Enex was founded in 2011 as a licensee of Shell in Chile. It has a network of 454 gas stations and also sells industrial fuels and distributes Shell lubricants, asphalts and chemical products.

In April, Sunoco LP completed the sale of its 207 retail c-store locations in several West Texas, Oklahoma and New Mexico markets to a single commission agent, Cal’s Convenience Inc.

Sunoco continues to operate sites along the New Jersey and New York toll roads along with its retail operations in Hawaii. As a result of its 7-Eleven deal and the commission agent transaction, Sunoco has 80 company-operated sites (including 54 Aloha Petroleum sites in Hawaii), 400 commission agent locations, 2,700 dealer locations and 3,800 distributor locations. It distributes motor fuel to 9,200 convenience stores, independent dealers, commercial customers and distributors in more than 30 states.

In April, Sunoco announced that it was focusing on wholesale fuel distribution and logistics and disclosed that it had signed a definitive agreement to buy the wholesale refined fuels business and some fuel terminal assets of Superior Plus Corp., a Toronto-based subsidiary of Superior Plus LP, for $39.8 million. The Superior Plus assets being acquired consisted of wholesale refined fuels operations in five Northeast states representing about 100 dealers and several hundred commercial contracts, as well as three pipeline-connected terminals in New York.

Giant Eagle Inc., one of the nation’s largest food, fuel and pharmacy retailers with 175 corporate and 54 independently owned and operated supermarkets in Pennsylvania, Ohio, West Virginia and Indiana, completed the acquisition of Ricker Oil Co. Inc. in December. Ricker’s has 56 company-operated stores in the Indianapolis and Fort Wayne, Ind., metropolitan areas and central Indiana. The transaction also included Ricker’s wholesale fuels distribution business of about 80 branded supply accounts in Indiana, Illinois and Kentucky.

In July, Global Partners LP completed the acquisition of the retail fuel and convenience-store assets of Champlain Oil Co. Inc and its Coco Mart Inc. convenience-store operating company for about $134 million, excluding inventory. The transaction included 37 company-operated stores with Jiffy Mart-branded stores in Vermont and New Hampshire and about 24 fuel-only sites that are either own or leased, including dealer and commission agent locations. The transaction also included term fuel supply agreements for about 65 gas stations, primarily in Vermont and New Hampshire.

Global Partners also acquired 10 company-operated convenience stores from Cheshire Oil Co. LLC of Keene, N.H. All of these stores are in New Hampshire and Vermont. In May, Global Partners announced that it was selling 32 retail convenience stores with gasoline in the Northeast and Mid-Atlantic regions, and in December, the company announced that it was selling an additional 11 company-operated convenience stores with gasoline in New York. Global Partners retained NRC Realty & Capital Advisors LLC to handle both of these sale transactions.

In March, GPM Southeast LLC, a subsidiary of GPM Investments LLC, closed on the acquisition of five convenience stores with gas in South Carolina from Crenco Food Stores Inc.

In April, the company finalized the acquisition of 273 convenience stores in Texas, Oklahoma, Louisiana and Arkansas from E-Z Mart Stores Inc. in a transaction that had been announced the previous December. In June, GPM closed on the acquisition of 11 1 Stop convenience stores in Michigan from DMJ Corp.

As a result of these acquisitions, GPM operates or supplies fuel to approximately 1,400 stores in 21 states and is currently ranked as the sixth-largest convenience-store chain in the United States.

In 2018, Alimentation Couche-Tard Inc./Circle K (ACT) was primarily involved in integrating convenience stores that it had previously acquired in some very large acquisitions from CST Brands Inc. and Holiday Cos. As a result of those transactions, ACT added approximately 1,725 company-operated and franchised convenience stores to its network.

As a result of certain acquisitions that ACT completed in 2018, the company was required by the FTC to divest three Jet-Pep convenience stores in Alabama and 10 convenience stores in Minnesota and Wisconsin. In July, ACT agreed to sell 13 convenience stores and brand 23 retail sites across Atlantic Canada. Previously, all of the sites were branded Ultramar.

ACT and Irving Oil also entered into a joint venture to rebrand 36 of the sites that ACT acquired from CST Brands to Circle K and the Irving fuel brand.

In December, Circle K Stores Inc., a subsidiary of ACT, closed on the acquisition of four convenience stores and one fuel supply-only location from Carls Oil Co. Inc., Hinckley, Ill.  The stores are in northern Illinois and the western outskirts of the Chicago metropolitan area. NRC Realty & Capital Advisors served as financial adviser to Carls in connection with the transaction.

Also in December, Circle K Stores and CrossAmerica Partners LP, which is a wholly owned subsidiary of ACT, agreed to an asset exchange in which Circle K agreed to sell 192 company-operated Circle K convenience stores in the United States to CrossAmerica in exchange for the real estate at 56 United States company-operated convenience stores leased and operated by ACT and 17 company-operated stores in the upper Midwest currently operated by CrossAmerica. The 192 stores, of which 162 are fee and 30 are leased, have an aggregate value of $184 million. The Circle K retail stores to be sold to CrossAmerica will remain with ACT until dealers are secured to operate the sites. The companies will exchange the assets in a series of transactions over a period of up to 24 months. The companies expect the first transaction to occur in the first half of 2019.

Retailer Yesway had an extremely busy year in terms of acquisitions.

In February, the company acquired five Rip Griffin Travel Centers in Texas and one State Line convenience store in Missouri, from Rip Griffin Cos. and State Line Convenience Inc., respectively.

In March, Yesway acquired the In & Out BP Travel Plaza in Marshalltown, Iowa. In May, the company acquired 11 Pic-A-Dilly convenience stores in northeast Missouri from Niemann Foods of Quincy, Ill., and Big River Oil of Hannibal, Mo. And in June, Yesway acquired 13 Chisum Travel Center and Fast Stop convenience stores in Texas, as well as 26 Fresh Start convenience stores located in South Dakota, Wyoming and Nebraska.

With these acquisitions, Yesway has brought the number of stores it operates to 150.

• Anabi Oil, based in Upland, Calif., agreed to purchase 13 Aisle 1 gas stations in North California and Nevada from grocery company Raley’s. The Aisle 1 stores offer full service fuel, car wash and convenience items.
• Atlantis Management Group LLCclosed on the acquisition of the gas station and convenience-store network formerly owned by Spring Valley, New York-based Dattilo Petroleum Inc. The transaction included 27 retail sites in New York and New Jersey that were branded either Shell or CITGO.
• Casey’s General Stores Inc., Ankeny, Iowa, acquired seven Quik Stop convenience stores in Wisconsin from Saukville, Wis.-based Tri-Par Oil Co., and also acquired two stores in Missouri from Bauman Oil Distributors Inc.
• Canonsburg, Pa.-based Coen Markets Inc., a subsidiary of Coen Oil Co. LLC, signed a definitive agreement to purchase the outstanding stock and operating assets of Pittsburgh, Pa.-based CoGo’s Co., which owns and operates 38 conveniences stores in western and central Pennsylvania, West Virginia and Maryland, and also has a franchise program.
• Empire Petroleum Partners LLC, Dallas, acquired the wholesale distribution business of Savannah, Tenn.-based Willoughby Inc., which included 120 new dealer customers in Tennessee, Mississippi and Arkansas.
• Savannah, Ga.-based Enmarket completed its acquisition of 34 E-Z Shop convenience stores in South Carolina from Brabham Oil Co. Inc of Bamberg, S.C. The purchase brings Enmarket’s store count to 122 convenience stores and 14 quick service restaurants.
• H&S Energy LLC, Orange, Calif., purchased 50 c-store locations in Northern California from Tower Energy. The stores were rebranded as Power Market and Extra Mile, with Chevron as the fuel brand.
• Woodbury, Minn.-based Northern Tier Retail LLC, a subsidiary of Andeavor (now MPC), acquired Croix Oil Co.’s convenience retailing assets, consisting of 13 company-operated stores in Minnesota and western Wisconsin.
• Par Pacific Holdings Inc., Houston, completed the acquisition of 33 Cenex Zip Trip convenience stores from CHS Inc., Inver Grove Heights, Minn., for a total consideration of $70 million. Most of the stores are in the Spokane, Wash., metropolitan area and various cities in Idaho.
• Denver-based Pester Marketing Co.acquired the 42 retail convenience stores owned by Western Convenience Stores Inc. located primarily in Colorado. All of the stores were rebranded to the company’s proprietary Alta Convenience Stores brand and offer Phillips 66 gasoline products. NRC Realty & Capital Advisors LLC serves as financial adviser to Western in connection with the sale.
• In July, newly formed investment group Riiser Fuels Holdings LLC, Dascade, Wis., acquired the 34-unit Riiser Energy R-Store convenience-store chain in Wisconsin, as well as the 11 convenience stores of Mad Max Convenience Stores, Saukville, Wis. In August, Riiser Fuels acquired the six convenience store locations of Marshall’s Convenience Stores Inc. in Wisconsin.
• Long Beach, Calif.-based United Pacific acquired 39 convenience stores in California from Macland Investments, Ventura, Calif. The majority of the stores are in Los Angeles County. The transaction also included seven car washes and five quick-service restaurants.

Merger-and-acquisition activity in the convenience-store industry has been extremely strong during the past year or two, and there are no signs that it will subside in 2019.

Purchase price multiples also remained high in 2018, and that trend will likely continue this year.; however, challenges for the industry remain.

Amazon has begun rolling out its Amazon Go stores, and it remains to be seen how quickly the company expands that concept throughout the country, and what effect it will have on traditional convenience stores. Amazon has already demonstrated its interest in the grocery and foodservice sector by its acquisition of Whole Foods Markets. Through both its Amazon Go stores and Whole Foods Markets, Amazon is experimenting with expanded and innovative means of home delivery.

Furthermore, Walmart announced in 2018 that it was expanding into the convenience-store channel. Walmart opened one store in Texas in July and announced that it plans to open several more in the next few years.

Labor costs and swipe fees remain major issues for operators and will continue to put pressure on profits. On the other side of the ledger, the continuation of low gas prices has meant that consumers are buying bigger automobiles, SUVs and crossovers, resulting in more gasoline purchases and a reduced focus on hybrids and electric cars. This trend certainly bodes well for the industry, at least in the short term.

Convenience stores are increasingly being forced to compete with dollar stores, grocery stores and quick-service restaurants. Although purchase price multiples that have been paid for recent acquisitions have been very high in the past couple of years, some of the headwinds described in this section may present downward pressure on multiples in the future. Furthermore, it is difficult to predict how long we will continue to enjoy record-low oil prices and high fuel margins.

Finally, we are living in a challenging economic and political environment. Although unemployment is at a record low, interest rates increased during 2018 and will continue to go up this year. Many economists are predicting a recession later this year, and, if that comes to pass, it will certainly have an adverse effect on the convenience-store industry and the acquisition environment. Owners and operators should take all of these factors into consideration in deciding on their long-term strategy.

Dennis L. Ruben is executive managing director of NRC Realty & Capital Advisors LLC. He can be reached at dennis.ruben@nrc.com.