Mergers & Acquisitions

Insider's View: A Q2 2013 M&A and Capital Markets Review

Demand exceeds supply, pushing up multiples

SCOTTSDALE, Ariz. -- The second quarter of 2013 was relatively quiet in terms of significant merger-and-acquisition activity, with a few notable exceptions.

GPM Investments LLC announced its purchase of 263 stores from VPS Convenience Store Group. Hess Corp. continued its efforts to divest its downstream retail business.

Although 7-Eleven Inc. continues to complete acquisitions and build new stores, there were no blockbuster deals completed by them during the second quarter. 7-Eleven did, however, make big news by announcing the divestiture of 145 sites in six states.

Many of the other major industry players, such as Alimentation Couche-Tard Inc./Circle K, Casey's General Stores Inc., Kum & Go LC, Wawa Inc. and Susser Holdings Corp. are continuing their expansion programs by building or acquiring stores in existing and new markets.

Based upon the levels of interest we have seen for quality convenience store assets, it seems clear that the demand for such properties far exceeds the supply and will continue to push purchase price multiples even higher than we have seen previously.

Hess Corp.

The drama continued into the second quarter with respect to the conflict between senior management of Hess Corp. and major investor Elliott Management Corp. Elliott had proposed its own slate of five new directors and urged a reevaluation of the company's strategy and a possible breakup of the company. The dispute continued right up to the May 16 annual shareholders meeting.

Partially in response to pressure and concerns that had been expressed by Elliott and other shareholders, the company announced that it was separating the offices of chairman and chief executive officer. Just before the annual meeting, the company and Elliott announced that they had reached an agreement concerning the composition of the board.

Hess also reaffirmed its commitment to exit the downstream retail business. In early June, Hess announced that it had agreed to purchase the remaining 56% of WilcoHess LLC that it did not already hold. The company stated that the acquisition of the remaining interest in WilcoHess will enable it to continue its divestiture of the downstream business in a manner that will maximize value for shareholders.

Although the company has not announced a timetable for the divestiture of the retail network, it would appear that Hess is actively working toward the completion of the divestiture in the near future.

WilcoHess, based in Winston-Salem, N.C., operates 353 convenience stores and 37 travel plazas in eight states in the East and South. Industry analysts have speculated that Alimentation Couche-Tard and Marathon Petroleum Corp. may have an interest in acquiring Hess' retail network.

7-Eleven Inc.

7-Eleven Inc. was busy during the second quarter on a number of fronts.

In April, 7-Eleven announced that it had closed on the acquisition of 46 locations from CB Mart Inc. in South Carolina. With that acquisition, 7-Eleven increased its store count in the Carolinas to more than 100, and follows the acquisition of 55 Sam's Mart and 13 Fast Track stores that closed last year.

Later that month, the company announced that it was selling 145 sites in six states by sealed bid sale through NRC Realty & Capital Advisors LLC, Chicago. In announcing the sale, 7-Eleven stated that these stores did not fit its present business model and strategy for one of a variety of reasons. The majority of the sites being sold are in Texas and Florida.

The company also announced that it has added 38 stores across a five-county region in southwestern Florida since 2011 and plans to add an additional 40 within the next five years. In addition to opening new stores in the region, 7-Eleven is looking to sell the franchises to about 40 existing, corporate-owned stores.

Alimentation Couche-Tard Inc./Circle K

Petroleum Marketing Group (PMG) entered into an agreement to act as area developer for the Circle K brand in key areas of New Jersey, having previously committed to branding Circle K at the six company-operated stores in the state. PMG will make the Circle K brand opportunity available to qualified businesses expressing an interest in the Circle K brand within New Jersey.

Getty Realty Corp.

Getty Realty Corp. announced that it has identified 108 more gasoline stations and properties to divest as a result of the December 2011 bankruptcy of Getty Petroleum Marketing Inc., an unrelated entity which had previously operated about 800 units leased from Getty Realty Corp. The properties are located in 12 states, and the divestiture is being conducted as a sealed bid sale by NRC Realty & Capital Advisors, LLC. The offering consists of 40 gasoline stations and 68 commercial and retail properties.

In May, Getty Realty announced that it acquired 36 properties located in the metropolitan New York and Washington, D.C., regions for approximately $72.5 million in two sale-leaseback transactions with Capitol Petroleum Group LLC. This acquisition by Getty Realty, the first since 2011, included 16 Mobil-branded properties in the metropolitan New York area, and 13 Exxon-branded and seven Shell-branded properties within the Washington, D.C., Beltway.

Susser Holdings Corp.

Susser Holdings Corp. announced that it has closed on a new $500 million revolving credit facility. The company intends to use approximately $250 million of the capacity under the new credit facility, along with existing cash, to retire $425 million of 8.5% senior notes due 2016. The company said that the refinancing should enable it to reduce its annual interest expense by $30 million to $32 million.

Susser Holdings Corp. also began construction of the first of five Stripes Convenience Stores in the Waco, Texas, area. The company opened four new Stripes stores during the first quarter and closed one store that is being rebuilt with the company's larger footprint. It operated 562 Stripes stores at the end of March, 355 of which included an in-store restaurant offering.

It also added five new dealer sites in the wholesale segment and discontinued five sites in the first quarter, for a total of 579 contract-branded sites as of March 31, consisting of 92 consignment locations and 487 other independent branded dealer contracts.

Susser Holdings Corp. indicated that it expects to open a total of 29 to 35 new stores in 2013.

Other Retail Initiatives

  • Stewart's Shops Inc. is planning to remodel or rebuild five Wilson Farms and Sugarcreek convenience stores in upstate New York that it purchased. These stores were not among the stores purchased by 7-Eleven Inc. when it acquired Wilson Farms in 2011.
  • RaceTrac Petroleum Inc. recently opened two new stores in Pasco, Fla., in the Tampa area. RaceTrac joins Wawa Inc., Thorntons Inc. and 7-Eleven Inc. in the expansion in the region.
  • CEFCO Convenience Stores opened its newest location in Mt. Vernon, Texas, co-branded with a Huddle House restaurant, reflecting CEFCO's latest design for the next generation of stores.
  • Atlas Oil Co. launched a new convenience store concept--Earth Market--in a new store opened in Frankfort, Ill.
  • TravelCenters of America LLC acquired and rebranded a travel center in Wells, Nev., to the Petro Stopping Centers brand and also opened a newly rebuilt Petro facility in Gary, Ind.
  • The Pantry Inc. opened a new Kangaroo Express convenience store located on the infield at Charlotte Motor Speedway in Concord, N.C. Kangaroo Express is the exclusive convenience retailer at Charlotte Motor Speedway, and the new infield store location marks the start of a three-year partnership. It is accessible to all infield campers and speedway guests during each NASCAR event day in May and October.
  • Spirit Petroleum announced the opening of the first Spirit station in North Dakota on the Standing Rock Sioux Indian Reservation in Fort Yates, N.D.
  • Casey's General Stores Inc. announced that it will continue its aggressive expansion plans and will build or acquire between 70 and 105 stores in its fiscal year, which began May 1. In addition, Casey's plans to replace 20 stores and complete 25 major remodels. Casey's currently has 15 new stores under construction and 52 sites under contract to be built in one of two current store designs: a 4,200-square-foot facility or a 3,200-square-foot facility. A significant number of the new stores will be in new markets in Arkansas, Tennessee, Kentucky and North Dakota and will also "fill in" locations within existing markets.
  • Kum & Go LC reached a milestone by opening its 50th store in the state of Colorado during the second quarter. The store is located in Colorado Springs.

Oil Company Initiatives

Valero Energy Corp.'s planned retail business entity, CST Brands Inc., cleared the final regulatory hurdles as Valero's board of directors approved the spinoff as a tax-free distribution to shareholders. The spinoff to shareholders of Valero occurred on May 1, and CST Brands emerged as a separate entity on the New York Stock Exchange.

CST Brands has approximately 1,900 sites in the United States and Canada with $13.1 billion in revenues in 2012. In 2013, CST Brands plans to build 15 new stores in the United States, adding to its network of more than 1,032 stores throughout the Southwest and West.

In May, Tesoro Corp. received approval from the Federal Trade Commission (FTC) to complete the planned acquisition of BP's fully integrated southern California refining and marketing business, including the Carson, Calif., refinery and retail network. The transaction was closed in early June. The purchase price for BP's assets was $1.075 billion, plus the market value of inventory, which was estimated at $1.35 billion.

In addition to the Carson refinery, which produces 240,000 barrels per day, the transaction included 800 dealer-operated retail stations in southern California, Nevada and Arizona, as well as the ARCO brand and other trademarks and a master franchisee license for the ampm convenience store brand.

Tesoro Corp. also announced that it has signed an agreement with a wholly owned subsidiary of Par Petroleum Corp. to sell all of its interest in Tesoro Hawaii LLC, which operates the Kapolei refinery, 31 gasoline stations and related assets. The sale price was $75 million, plus the market value of net working capital, estimated to be $225 million to $275 million. Par Petroleum indicated that after the closing, the retail stations would remain under the Tesoro brand.

Other Notable M&A Transactions

  • GPM Investments LLC, dba Fas Mart and Shore Stop, announced its purchase of the 263-store Southeast Division of VPS Convenience Store Group, nearly doubling the size of the chain. With the VPS transaction, GPM will take on four store brands--Scotchman, Young's, Li'l Cricket and Everyday Shop. The transaction will give GPM a stronger presence in North Carolina, South Carolina, Tennessee and Virginia. Upon completion of the transaction, GPM will operate 467 company stores, as well as supply 143 dealer locations, for a total of 610 stores in 10 states.
  • VPS Convenience Store Group acquired the 17-store BreadBox chain located in the greater Knoxville, Tenn., area. BreadBox sells Shell- and ConocoPhillips-branded fuels.
  • Pester Marketing Co., dba Alta Convenience, announced its recent acquisition of four Conoco-branded convenience stores located in northern New Mexico that were previously owned by State Oil Co. Inc.
  • Holiday Stationstores purchased seven SuperAmerica stores in Rochester, Minn., from Northern Tier Energy. Holiday announced that it plans to build more stores in the Rochester market.
  • Speedway LLC purchased three "500 Express" gasoline stations in Terre Haute and Sullivan, Ind.
  • Atlas Oil Co. announced that it has purchased most of the assets, including 20 gasoline stations, from The Hadi Cos. and its affiliates through a sale conducted under the U.S. Bankruptcy Code. The sale included 20 retail sites throughout the metropolitan Detroit area and up to 50 retail fuel supply agreements that are predominantly branded Marathon and Speedy.
  • Speedway LLC purchased four Sunoco stations in the Pittsburgh, Pa., market that were owned by a local franchise group operating as Online Inc.


It is difficult to draw too many conclusions from the second quarter about how the rest of the year will develop in terms of merger-and-acquisition activity; however, it appears that, as a result of the flurry of significant transactions that occurred in 2012, there is not the same pipeline of large transactions in the marketplace at the moment.

It remains to be seen whether some medium to large operators decide to sell their companies or portfolios of stores in order to take advantage of the high demand for assets and the resulting increase in purchase price multiples, as well as the current low interest-rate environment. By the end of the next quarter, we should have a much clearer picture as to the landscape in the c-store industry for the remainder of the year.

[Editor's Note: Dennis L. Ruben, executive managing director of NRC Realty & Capital Advisors LLC, contributes an annual and quarterly column to CSP, analyzing mergers and acquisitions and key economic trends in the convenience channel. He can be reached at He will also headline the Capital Markets Symposium at the 2013 Outlook Leadership Conference, Nov. 9-12, in Scottsdale, Ariz.]

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