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Mergers & Acquisitions

Insider’s View: Q3 2015 M&A Review

Strong demand remains for c-store assets, but downward pressure may be coming on purchase prices

SCOTTSDALE, Ariz. -- Although the third quarter of 2015 was relatively quiet in terms of new merger-and-acquisition activity in the convenience-store industry, there were a few notable transactions by some of the major industry players, such as Circle K, Sunoco and TravelCenters of America.   m&a

In addition, Westex Capital LTD completed the sale of all of its convenience stores and its fuel and propane distribution business. The fourth quarter is historically the busiest quarter in terms of M&A activity, as both buyers and sellers try to complete or at least sign deals before the end of the year. We are aware of several transactions that should be announced later in the year. Most importantly, there continues to be very strong demand for quality companies and portfolios of convenience-store assets.

7-Eleven Inc.

SEI Fuel Services Inc., an affiliate of 7-Eleven Inc., announced the purchase of the dealer fuel supply business of LavigneBaker Petroleum LLC in and around New Orleans. Since 2012, SEI Fuel has purchased four other wholesale businesses and now sells more than 600 million gallons of fuel annually to open dealers. With this transaction, SEI Fuel enters the New Orleans market as the largest Shell-branded distributor, supplying approximately 60 branded locations.

In July, 7-Eleven announced that it was selling 25 gas stations and convenience stores in 10 states. The company felt the stores did not fit its current business model. All of the sites are operational, and 16 of the sites are convenience stores with gas, while nine do not offer fuel.  NRC Realty & Capital Advisors, LLC was engaged by 7-Eleven to coordinate the sale.

In August, 7-Eleven closed on the sale of Rockland, Massachusetts-based Tedeschi Food Shops and its approximately 180 convenience stores. A 7-Eleven spokesperson said that a rebranding of the Tedeschi locations to 7-Eleven will be gradual, and, for now, the stores will continue to operate as Tedeschi Food Shops. However, 7-Eleven intends to remodel and rebrand several stores later this year.

CST Brands Inc./CrossAmerica Partners LP

CST Brands Inc. and CrossAmerica Partners LP announced the closing of dropdown transactions between the two companies that involved the acquisitions of the real property associated with 29 new-to-industry stores (NTIs) and an additional 12.5% interest in CST Fuel Supply LP for aggregate consideration of $142 million in cash and 3.6 million newly issued common units representing limited partner interests in CrossAmerica. With this transaction, CST Brands now holds approximately 5.1 million common units of CrossAmerica.

CrossAmerica also announced that it closed on the previously announced purchase of the One Stop convenience-store chain based in Charleston, W.Va., which includes 41 company-operated convenience stores, four commission agent sites, nine dealer fuel supply agreements and one franchised quick-service restaurant.

Alimentation Couche-Tard/Circle K

In July, Circle K announced that it was selling 26 former Circle K gas stations and convenience stores in four Midwestern states.

The company also announced that it had entered into an agreement with Comercializadora Circulo CCK SA de CV to rebrand more than 700 of CCK’s existing Extra convenience stores throughout Mexico to the Circle K brand by August 2017. Under this agreement, the number of Circle K stores in Mexico will grow to 1,100 by August 2017, and a minimum of 2,400 by 2030.

Further expanding the presence of the Circle K brand, the company said that it will rebrand the approximately 1,500 Kangaroo Express convenience stores purchased from The Pantry in early 2015 to Circle K.

In September, Circle K announced that it had entered into an agreement with Kocolene Marketing, the retail division of Seymour, Indiana-based holding company Kocolene Development Corp., to purchase its 13 Fast Max convenience stores.

Energy Transfer Partners LP/Sunoco LP

In an effort to accelerate Sunoco LP’s exposure to the retail side of the convenience-store business, Energy Transfer Partners LP (ETP) announced that it is selling 100% of Susser Holdings Corp. to Sunoco LP for approximately $1.934 billion in aggregate consideration.

In August, Sunoco LP’s Susser Petroleum Property Co. LLC was the successful bidder of the assets of Aziz Convenience Stores LLC, consisting primarily of 28 convenience stores throughout Hidalgo County in southern Texas, for a purchase price of $41.6 million. The sale was completed in conjunction with bankruptcy proceedings under chapter 11 filed by Aziz in August 2014.

Sunoco also announced that it intends to open 40 new Stripes stores this year, all with Laredo Taco locations, and plans to build at least 40 new sites in 2016.

Other Notable M&A Transactions

  • Pico Petroleum and its parent company, Westex Capital LTD, sold their 26 convenience stores in several markets in South Central and West Texas, as well as a fuel and propane distribution business with six bulk fuel plant locations and five propane storage yards. NRC Realty & Capital Advisors LLC served as exclusive financial advisor to Westex and its affiliates in connection with the sales.
  • Fuel USA LLC acquired all of the assets of Workman Oil Co., a retailer with 52 convenience stores in central and southwest Virginia and eastern Kentucky operating primarily under the trade name Apple Market and a wholesaler to 19 dealer locations in Virginia.
  • Quality Oil Co. LLC closed on the purchase of the assets of GOGAS Corp. based in Wilmington, N.C., consisting primarily of 20 high-volume gas stations in southeastern North Carolina.
  • TravelCenters of America acquired 21 Thoroughbred Energy-branded convenience stores in Kentucky from Traxx Cos. TA also expects to acquire 13 additional, primarily leased locations upon the seller, satisfying certain closing conditions. All of the stores will be rebranded Minit Mart convenience stores and will undergo improvements in the coming months.
  • Alon Brands acquired 14 convenience stores from family-owned Roberts Oil Co., bringing its total store count in the Albuquerque, N.M., market to 38. All of the stores are being converted to Alon/7-Eleven stores.

Divestiture of Non-strategic Assets

RaceTrac Petroleum Inc. announced in July that it was selling 30 RaceWay convenience stores with gasoline in eight states, 23 of which are currently operating and seven are closed. These stores were not deemed a “fit” for the company. NRC Realty & Capital Advisors, Chicago, was retained to handle the sale for RaceTrac.

The combination of low gasoline prices, record fuel margins and increased merchandise sales throughout the industry has had a number of effects on M&A activity in the convenience-store industry.

Many operators are making so much money right now that they are content with maintaining the status quo in terms of their operations. On the other hand, the EBITDA purchase-price multiples paid on many recent transactions have been incredibly high, making many industry observers wonder whether we are “at the top” or whether further multiple increases are on the horizon.

This seems to be the dilemma that many operators are facing at present—whether to keep making huge profits and bet that the huge purchase price multiples will still be there (or may even increase further) when they decide to sell, or whether they need to take advantage of the current low-interest-rate environment and apparent voracious appetite of the largest industry players (both master limited partnerships (MLPs) and large industry operators) for acquisitions and sell now.

From our vantage point, we do not see how the current frothy environment for acquisitions can continue indefinitely. We have observed that, although there are many players who are interested in the various acquisition opportunities that have been presented in the marketplace, the key bidders in most transactions have been the same group of six or eight major players. Other interested parties have concluded early in the bid process that they cannot compete effectively with the MLPs and other large industry operators who have an extremely low cost of capital and abundant access to it.

Consequently, the “playing field” may be getting narrower, which, in our view, may very well cause some downward pressure on purchase price multiples. It should be an interesting few months to observe how the industry reacts to all of these variables.

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-store channel. He can be reached at dennis.ruben@nrc.com. He will also headline the Financial Outlook session at the 2015 Outlook Leadership Conference, Nov. 14-16 in Scottsdale, Ariz.

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