CHICAGO — Could the day of huge merger-and-acquisition (M&A) deals in the convenience-store industry be gone?
That’s what Dennis Ruben, executive managing director of NRC Realty & Capital Advisors, Chicago, thinks—or at least he says they’ll be “few and far between.”
But some recent merger talks suggest otherwise. In late April, Alimentation Couche-Tard Inc. and EG group were reported by The Wall Street Journal to be in merger talks, according to people familiar with the matter.
Should the international companies combine, the new group would have more than $70 billion in annual revenue and approximately 21,000 quick-service restaurants (QSRs), convenience stores, gas stations and grocery stores in more than 30 countries. It would be a shakeup to CSP’s Top 202 list of c-stores by store count, possibly combining the second and fifth largest chains in the country. (With a total of nearly 9,000 stores in the U.S., the new company wouldn’t quite challenge leader 7-Eleven Inc.)
Huge M&A deals in the c-store industry will be “few and far between.”
Either way, the M&A landscape is certainly changing from what the industry saw amid the COVID-19 pandemic.
“Between the war in Ukraine and interest rates and electric cars, there’s a lot of things to talk about going forward,” Ruben says. “I think for the most part, people kind of came through COVID, the worst of it, and the deals that got signed up either before or during, they [were forced to close] later in the year in 2020 or early 2021.”
Some of the most notable deals from 2021 included 7-Eleven Inc. (No. 1) acquiring more than 3,800 Speedway stores, Shell Retail (No. 32) and Convenience Operations LLC acquiring Timewise from the Landmark group of companies, and BP America (No. 7) acquiring the Thorntons c-store chain.
Speedway folding into 7-Eleven opened the door for QuikTrip Corp. to enter the Top 10 c-store chains, while seven others moved up a notch in 2022 from the previous year’s list. Further down the list, other chains saw significant shifts in store counts in 2021, highlighted in the coming pages of retailer stories and breakouts along with the Top 202 list itself.
Market Watch
There are some headwinds c-stores are facing in 2022 that could affect M&A moving forward, Ruben says.
The war in Ukraine is keeping fuel prices at or near record high, challenging summer travel, gasoline volumes, and thus, store profit. There’s also the issue of inflation.
“I think the Fed’s intimating that they are going to raise [interest rates], if that’s the case, that’s going to make it tougher for people to do deals. It’s that simple,” he says.
Ultimately, this could cost operators more to borrow money, putting downward pressure on earnings multiples for acquisitions, Ruben says.
How electric vehicles (EVs) will affect the market is another ongoing discussion but likely more of a long-term issue. Geographies where there is a greater push for EVs, such as in the Sun Belt, California, Arizona and parts of the Midwest, will be most affected, he says.
So what will M&A deals in 2022 look like? First, the importance of foodservice cannot be understated, Ruben says.
“It’s a big deal, and I think that where fuel prices and fuel volume is a little bit more volatile, quality food is still going to be a big driver,” he says. “Look at Wawa. People go to Wawa probably more for the food than the gas. They have that kind of reputation.”
Companies with a better foodservice product could wind up being more attractive to buyers than ones that rely on fuel, he says.
When it comes to the sizes of chains selling, small- to medium-size operators, those with 10 to 50 stores, will be the ones on the market, Ruben says. Those are the types of stores that may be a family business without a succession plan, for example, he says.
“I think it’s going to be harder and harder for the small- to medium-sized guys to compete. … They will be feeling more pressure to sell with multiples at an all-time high—and they have been the last few years,” he says.
Finally, the industry will likely see more divestitures, Ruben says.
“I think you are going to see people trying to rationalize their portfolio and figure out what assets make money and which ones don’t, and if some don’t, are they good enough to sell them and redeploy the capital,” he says.
Here’s a look at some of the chains that showed remarkable growth in 2021 and their varying motivations.
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