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Mergers & Acquisitions

Will Consolidation Continue at the Current Pace?

Why the industry may have no choice
Photograph: Shutterstock

ASHEVILLE, N.C. — A decade into a seller's market in the convenience-store channel, representatives of Raymond James Financial, St. Petersburg, Fla., raised a common question during a special mergers and acquisitions breakout panel at CSP's Outlook Leadership conference: Is consolidation here to stay?

“We’re going through a period of unprecedented acquisition,” said Raymond James Managing Director Roger Woodman. “We’re seeing a larger amount of capital in this channel than ever before.”

He cited the following elements driving recent c-store consolidation:

  • Record valuations of properties.
  • Capital available at low cost.
  • Generational succession issues.
  • International buyer interest.
  • Industry fundamentals, such as oil companies reconsidering retail.
  • Voracious appetites for growth by strategic buyers.

One of the newest strategic buyers to enter the U.S. c-store market is the U.K.’s EG Group, which surprised the industry in early 2018 with its acquisitions of Kroger’s 762-site c-store network, soon followed by the purchase of 225 Minit Mart c-stores from TravelCenters of America LLC and most recently scooping up Cumberland Farms’ 560 stores. In a year, the company went from having zero presence in the United States to being the eighth-largest chain in the industry, according to CSP’sTop 202 ranking.

“We’ve come to the U.S. because we want to be a global player, and the U.S. is the largest market in fuel and convenience,” said Robin Lawrence, EG Group’s vice president of acquisitions and development.

The United States, he said, is a “tremendous opportunity” for EG Group. “We can buy businesses over here, which gives us immediate scale,” Lawrence said. “It also gives us an opportunity to invest in new-to-industry sites. We see a great opportunity to expand our business worldwide, to diversify and to spread our risk.”

Spreading the risk seems to be a major strategy of the latest school of acquirers as a collection of headwinds threaten the booming acquisition market. They include an onerous regulatory environment, rising operational costs, declining fuel and tobacco sales, industry disruption, elevated consumer expectations and increasing building costs.

“One of the responses to headwinds can be scale,” said panelist Simon Richards, president and CEO of Thorntons Inc., which was acquired in late 2018 by a joint venture of oil major BP and ArcLight Capital Partners.

One significant element that EG Group and Thorntons have in common is investment from private-equity groups. Raymond James Managing Director Scott Garfinkel said he expects these entities’ interest in c-stores to grow.

“Private equity is probably underinvested in the c-store industry,” he said. “But as time has passed, we’ve seen the c-store industry hold up quite well [against challenging economies], and private equity sees that and is getting in now.”

So is consolidation here to stay? The way some of today’s major players see it, they must continue to grow to maintain their edge.

“There is plenty of money looking for a home,” said Richards of Thorntons. “That allows us to diversify and operate in differing geographies. ... The businesses that are doing well today are doing very well. They’re powering through the challenges.”

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