Mergers & Acquisitions

Lehigh Gas Sticks to Its M&A Strategy

"Maintaining discipline" in light of ETP-Susser deal; looking at "eight or nine" acquisition

ALLENTOWN, Pa. -- Gauging the effect that the Energy Transfer Partners (ETP)-Susser Holdings deal has had on the mergers and acquisition landscape for the petroleum and convenience store industry and their own strategy, Lehigh Gas Partners LP executives said that the high-profile, $1.8 billion transaction will keep them from going after transactions of that size.

Lehigh Gas Partners (CSP Daily News / Convenience Stores)

"I would tell you that they paid a formidable price, and the larger acquisitions get at that pricing, that will be a drag on us doing larger deals," Lehigh Gas president Dave Hrinak said during the company's first-quarter 2014 earnings call. "But we focused on the deals in the $25 million to $75 million range, and I think that [deal] really won't affect that sized transaction for us."

Hrinak called the ETP-Susser deal, which will combine the Sunoco and Stripes retail networks, "a wonderful transaction for both companies. I think the way they're structuring it where they're going to be more efficient with their earnings and distribution through the partnership is a good idea. …. So in many ways that model is kind of like what we're doing."

But in going up against ETP in previous transactions, the company has stuck to its strategy and "maintained [its] discipline" on what it will bid, added CEO Joe Topper.

Concerning higher multiples currently being seen in the acquisitions market, Topper said, "The higher end of it was driven by ETP in the deals that we did not get."

Lehigh Gas bid on the Mid-Atlantic Convenience Stores (MACS) deal in Oct. 2013 and the recent Tigermarket deal. Those stores are now part of ETP's retail network.

"I think some buyers are trying to take advantage of interest rates at the level that they're at to lock in some financing at this rate and buyers would be more aggressive there and are willing to sell for," he said. "So, I think it's a combination--there were some aggressive buyers out there, there are some interest rate risks that people were trying to lock in, and I think buyers were asking for more."

He concluded, "I don't think it's an ever increasing trend. I'm pretty sure of it because of the two transactions that we did are market appropriate."

Earlier this month, Lehigh Gas acquired Petroleum Marketers Inc. (PMI) for $61 million. In mid-April, it acquired BP's assets in the Chicago area and northwestern Indiana for $38.5 million.

"We are looking forward to entering into the Chicago market and to expand our relationship with BP, as we think both will expand the range of opportunities available, plus some future growth," said Topper.

He said that Lehigh Gas is looking at "eight or nine" acquisition deals, and that "the acquisition pipeline is still good."

Although the deals may not happen soon, said Topper, they "are out there, and if it's the right deal, we will go after it. … Every deal we announce brings two or three more out of the woodwork--[sellers] want to talk to us because it expands the market that we're in. So I'm quite optimistic."

Lehigh Gas' net income for the first-quarter of 2014 totaled $1.4 million, compared to $3.7 million in first-quarter 32013, the company said in announcing its earnings.

"We continued to face margin headwinds during the quarter as motor fuel prices rose during the period, continuing their upward trend that began in the fourth quarter. In addition, the harsh winter in the Northeast also depressed demand for the quarter," said Topper.

Lehigh Gas Partners, Allentown, Pa., is a leading wholesale distributor of motor fuels and owner and lessee of real estate used in the retail distribution of motor fuels. Formed in 2012, Lehigh Gas Partners distributes fuel to more than 1,100 locations and owns or leases more than 625 sites in 14 states: Pennsylvania, New Jersey, Ohio, Florida, New York, Massachusetts, Kentucky, New Hampshire, Maine, Tennessee, Maryland, Delaware, West Virginia and Virginia. The company is affiliated with several major oil brands, including ExxonMobil, BP, Shell, Chevron, Sunoco, Valero, Gulf and CITGO. The company ranks as one of ExxonMobil's largest distributors by fuel volume in the United States and in the top 10 for many additional brands.

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