Mergers & Acquisitions

Insider’s View: C-Store Industry Consolidation Continues to Accelerate

A third-quarter review of mergers & acquisitions and capital markets, part 1

SCOTTSDALE, Ariz. -- The third quarter of 2014 witnessed the escalating pace of merger-and-acquisition activity in the convenience-store industry. It was difficult to imagine that any new shockwaves could be sent through the industry after the two “game changing” merger-and-acquisition transactions in the c-store industry were announced during the second quarter—the acquisition of Susser Holdings Corp. by Energy Transfer Partners LP and the acquisition of the retail assets of Hess Corp. by Marathon Petroleum Corp.’s Speedway LLC subsidiary. However, a number of transactions were announced during the third quarter that surprised industry observers and analysts alike.

mergers and acquisitions

Although it is difficult to determine the precise purchase price multiples paid for Susser and the Hess retail assets from the public filings, it is clear that both of these companies were sold for double-digit multiples. These transactions also signaled a further evolution of the consolidation of the convenience-store industry.

It now appears that the pace of consolidation will continue to accelerate, and that the likely purchasers for quality convenience-store companies and portfolios of assets fall into two categories: the master limited partnerships (MLPs) such as Energy Transfer Partners LP (ETP) and Marathon, and the more traditional owner/operators such as Circle K and 7-Eleven. However, these notable second-quarter transactions, as well as the transactions that were announced in the third quarter, support the notion that the MLPs seem to be “winning the day” in terms of making the highest offers and acquiring the most attractive companies and assets.

The tax advantages and apparent lower cost of capital of the MLPs allow them to stretch further in terms of the prices they are willing to pay, which clearly gives them an edge in the marketplace.The M&A activity in the third quarter of 2014 only serves to reinforce the notion of the predominance of the MLPs.

In a very surprising move that caught industry observers and analysts off guard, CST Brands Inc. announced that it was acquiring the general partner of Lehigh Gas Partners (LGP) and certain other rights for $85 million in cash and stock. Obviously, a key motivation for CST Brands was to acquire an MLP structure so as to compete more effectively with the other entities that have been able to take advantage of that structure.

Shortly after that transaction was made public, CST Brands announced that it had entered into an agreement to acquire all of the assets of Nice N Easy Grocery Shoppes Inc., one of the best known and most highly regarded convenience-store chains in the industry. These two transactions certainly were transformational in terms of making CST Brands a major player in the industry and in the chase for growth and dominance.

Not to be outdone, ETP continued its aggressive growth strategy by agreeing to acquire Aloha Petroleum Ltd., Hawaii’s largest independent gasoline marketer, for approximately $240 million. This transaction, as well as the Nice N Easy acquisition by CST Brands, makes it apparent that there are no longer any geographical boundaries or limitations for the major players in the industry, especially the MLPs. That should have the effect of “raising the stakes” for both potential purchasers and sellers in the industry by opening up the process to a larger group of prospective purchasers, which will likely drive up purchase price multiples even further.

Here’s a look at the major transactions and companies that shaped the third quarter:

CONTINUED: Breaking Down the Deals

CST Brands Inc.

CST Brands Inc. had a very busy quarter in terms of growth initiatives and acquisition activity.

First, CST Brands announced that it was acquiring the general partner of Lehigh Gas Partners (LGP), along with its incentive distribution rights (IDR). CST agreed to acquire LGP for $500,000 in cash, and the IDR for $16.5 million in cash with the remainder in 2.044 million shares of CST common stock, for a combined value of $85 million.  As a result of this transaction, which is scheduled to close in the fourth quarter, CST’s current footprint would expand from 1,900 sites in nine southwestern states and six Canadian provinces to the East Coast, where LGP distributes fuel to nearly 1,100 sites, owning or leasing more than 625 of them.

Furthermore, annual fuel volume would jump by 1 billion gallons to hit 3.9 billion gallons, with 2.9 billion in the United States, and annual revenues would increase from about $13 billion to $16.3 billion.

Perhaps most significantly, the acquisition gives CST access to the master-limited-partnership structure, which provides tax and other competitive advantages in the marketplace and capital markets. CST will control LGP through its 100% ownership of the general partner, and Joe Topper will remain as president and chief executive officer of LGP. Topper and other insiders will continue to own 44% of the limited partner interests in LGP.

Several days after the LGP acquisition was announced, CST announced that it was acquiring all of the assets of Nice N Easy Grocery Shoppes Inc. in central New York.

The Nice N Easy chain, founded by John MacDougall, who passed away this summer, was generally considered the “gold standard” in the industry. Nice N Easy consists of 33 company-operated stores in the Syracuse and adjacent markets, 22 of which are owned by the company and 11 are leased from third parties.

In addition, CST agreed to purchase the rights of Nice N Easy as franchisor with respect to 44 other locations operated by unaffiliated third-party franchisees. NRC Realty & Capital Advisors served as exclusive financial advisor to Nice N Easy in connection with the sale, which is scheduled to close in early November.

Energy Transfer Partners LP/Sunoco

Energy Transfer Partners LP (ETP) and Susser Holdings Corp. announced the successful completion of the merger of an indirect wholly owned subsidiary of ETP with and into Susser, with Susser emerging from the merger as a subsidiary of ETP. The transaction was consummated in late August.

Prior to the merger, Susser operated more than 640 convenience stores in Texas, New Mexico and Oklahoma, with 595 under the Stripes banner and 47 under the Sac-N-Pac banner. Susser is also the majority owner and owns the general partner of Susser Petroleum Partners LP (SPP), which distributes approximately 1.7 billion gallons of motor fuel annually to Stripes stores, independently operated consignment locations, convenience stores and retail fuel outlets operated by independent operators and other commercial customers in Texas, New Mexico, Oklahoma and Louisiana.

In late September, ETP announced that SPP had signed an agreement to acquire Honolulu-based Aloha Petroleum Ltd., Hawaii’s largest independent gasoline marketer and one of the largest convenience-store operators on the islands, for approximately $240 million, subject to a post-closing earnout, certain closing adjustments, and before transaction costs and expenses.  Aloha currently markets through approximately 100 convenience stores and gas stations throughout the state, about half of which are company-operated.

Marathon Petroleum Corp./Speedway

On Sept. 30, Marathon Petroleum Corp. subsidiary Speedway LLC closed its acquisition of Hess Corp.’s retail operations and related assets for a total consideration of $2.82 billion. The transaction included all of Hess’ retail operations, transport operations and shipper history on various pipelines.

Speedway announced that it will rebrand all Hess locations within three years. The combined number of Speedway company-owned convenience stores after the closing of the acquisition is 2,733, putting the company close to the top in terms of number of locations.


Venezuela’s state-run oil company, Petroleos de Venezuela SA (PDVSA) announced that it was seeking preliminary offers for its U.S. unit, CITGO Petroleum Corp., by the end of September. People close to the transaction have estimated that the unit could fetch up to $10 billion.

Investment bank Lazard Ltd. is running the sale process for CITGO on behalf of PDVSA. CITGO has 48 petroleum product terminals, three fully owned pipelines and six jointly owned pipelines in the United States. Thousands of independently owned gas stations also carry the CITGO fuel brand. According to inside sources, the EBITDA of the assets being offered for sale is approximately $1.5 billion.

Alimentation Couche-Tard/Circle K

Alimentation Couche-Tard Inc. agreed to acquire all 55 Super Pantry convenience stores from Tri Star Marketing Inc. The majority of the stores (51) are located in Illinois and four are located in Indiana. After the closing of the acquisition, the stores will operate under the Circle K brand.

The company also announced that it will continue to pursue strategic acquisitions, and expects to construct or rebuild 80 to 100 stores in its current fiscal year, a significant increase over the previous year.

Watch tomorrow for a look at smaller but notable c-store transactions across the United States.

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