The year 2013 proved to be a very active, surprising one in terms of merger-and-acquisition activity. Although it was not as active as 2012 was in terms of blockbuster transactions, there were a number of significant, notable transactions during the year. Also, a few large transactions involving California real estate that were “on the street” during the year did not appear to close.
Perhaps the most surprising transaction was the acquisition of Mid-Atlantic Convenience Stores (MACS) by Sunoco. Most industry observers had been speculating that Energy Transfer Partners, Sunoco’s new owner, would most likely spin off or sell Sunoco’s existing retail network. Instead, Sunoco chose to “double down” on the retail sector by adding MACS’ 300 c-stores in the Mid-Atlantic region. Another surprising acquisition involved Western Refining’s purchase of the ownership interests in Northern Tier Energy, which includes the SuperAmerica retail assets, consisting of 163 company-operated c-stores and 74 franchised locations.
Another story that partially unfolded during 2013 was the future of the retail network of Hess Corp. After much debate, the Hess board of directors decided to explore alternatives for its retail system, and in early 2014 it announced the spinoff of the retail assets to shareholders.
The larger industry players, 7-Eleven and Circle K, were relatively quiet last year compared to 2012. That seems to be the result of the lack of large, attractive companies and portfolios to acquire rather than a lack of interest on their part.
GPM Investments completed one of the largest transactions of the year through its acquisition of the Southeast division of VPS Convenience Store Group, which consisted of 263 company-operated and dealer locations in the Southeast. The acquisition brings GPM’s store count to 467 company stores and 143 dealer locations in 10 states. That is a remarkable achievement based on some of the challenges that GPM had faced previously.
The following summary reflects our assessment of the most significant events of 2013 from the perspective of mergers and acquisitions, and capital markets.
Hess Corp.
Early last year, an “activist investor ” in Hess Corp. urged the Hess board of directors to consider ways to maximize shareholder value, including the possibility of divesting certain assets or forming a master limited partnership (MLP) or a real estate investment trust. The focus was on the company’s approximately 1,360 gasoline and c-store locations in 16 Eastern states. Hess ultimately retained The Goldman Sachs Group Inc. to sell its retail assets.
It was announced in early 2014 that improvements in shareholder value will come in the form of a spinoff of the company’s retail gas station network. The spinoff would be tax-free and distribute all Hess retail shares to shareholders in Hess Corp., according to the company. Among industry analysts, estimates of the value of the gas station portfolio have varied widely, from $1.2 billion to as much as $3.4 billion.
Rumors had swirled throughout the industry about potential purchasers for the Hess assets, with the names Ali- mentation Couche-Tard Inc., Marathon Petroleum Corp. and BJ’s Wholesale Club Inc. surfacing in early 2014. In addition, Hess entered into an agreement with Buckeye Partners LP to sell its East Coast and St. Lucia terminal network for $850 million. The company also sold its energy marketing business, which supplies natural gas and electricity to commercial, industrial and small-business customers in the Eastern half of the United States, to Direct Energy for $1.2 billion. Hess announced in December that it was selling its commercial fuels business outside of the New York City area to Sprague Resources LP, based in Portsmouth, N.H.
Sunoco Inc.
In October, Sunoco Inc. surprised the industry by announcing the purchase, through an affiliate, of Mid-Atlantic Convenience Stores LLC (MACS), which has 300 convenience stores in the Mid- Atlantic region. When Energy Transfer Partners LP (ETP) bought the assets of Sunoco in 2012, there was widespread speculation that ETP would either sell or spin off the retail assets of Sunoco and focus on its pipeline, storage and processing business. The MACS acquisition clearly dispelled those rumors, at least for the moment. MACS had previously entered into an agreement with Circle K in 2012 to become a “brand developer” for Circle K, and the conversion of all of the MACS stores targeted for conversion to Circle K had been completed prior to the consummation of the acquisition. It is unclear how Sunoco will handle the Circle K branding agreement going forward.
Western Refining Inc.
Western Refining Inc., an independent refining and marketing company based in El Paso, Texas, entered into an agreement to acquire the ownership interests of ACON Investments and Texas Pacific Group (TPG) in Northern Tier Energy LP for a total consideration of $775 million. Northern Tier Energy’s assets consist of the St. Paul Park Refinery in St. Paul Park, Minn.; other midstream assets; and the SuperAmerica retail assets of the company, consisting of 163 company-operated c-stores and 74 franchised stores located primarily in Minnesota and Wisconsin.
Northern Tier Energy had previously completed an IPO as an MLP in July 2012. As a result of this transaction, Western Refining’s operating platform will include refining capacity of 242,500 barrels per day; wholesale distribution of approximately 100,000 barrels per day to customers in the Southwest, Mid- Atlantic and Upper Midwest regions; an integrated network of 458 retail c-stores; and extensive crude oil and refined product logistics assets.
MLP Momentum Continues
Coming on the heels of a number of initial public offerings (IPOs) in 2012 involving MLPs, several other industry players either commenced the IPO fi ling process or began an analysis of the merits of using the MLP structure during 2013. Western Refining Logistics LP, a subsidiary of Western Refining Inc., completed its IPO in October. The new company trades on the New York Stock Exchange (NYSE) under the symbol WNRL. Phillips 66 Partners LP, a subsidiary of Phillips 66, launched an IPO as well. The new entity, which trades on the NYSE under the symbol PSXP, will own, operate, develop and acquire primarily fee-based crude oil, refined petroleum product and natural gas liquids pipelines and terminals, and other transportation and midstream assets.
7-Eleven Inc.
Although 2013 didn’t prove to be the banner acquisition year for 7-Eleven that 2012 was, the company continued its aggressive growth and acquisition strategies during the year.
Early last year, 7-Eleven agreed to lease 19 stores in the Cleveland area from Lehigh Gas Partners LP. This transaction added to the other locations in the Cleveland market that it had acquired previously from EZ Energy Ltd. and Handee Marts Inc. The company announced that it has opened 12 stores in northeast Florida and plans to have 80 locations in the area by 2015. 7-Eleven also closed on the acquisition of 46 locations from CB Mart Inc. in South Carolina. With that acquisition, the company increased its store count in the Carolinas to more than 100; it follows the previous acquisition of 55 Sam’s Mart and 13 Fast Track stores.
During 2013, 7-Eleven announced the sale of 145 sites in six states by sealed-bid sale through NRC Realty & Capital Advisors LLC. In announcing the sale, the company said that the stores did not fit its present business model and strategy. The company also reported that it has added 38 stores across a five-county region in southwest Florida since 2011 and plans to add 40 more locations within the next five years.
Alimentation Couche-Tard/Circle K
Alimentation Couche-Tard Inc., through its subsidiary Mac’s Convenience Stores LLC, completed the acquisition of the assets of Dickerson Petroleum Inc., which consist of 29 company-operated retail locations operating as Gas Mart, as well as 29 wholesale assets. Circle K Stores Inc. entered into an agreement with Albuquerque Convenience & Retail LLC, a wholly owned subsidiary of Phillips 66 Cos., to acquire 23 c-stores in New Mexico. Circle K also closed on the acquisition of 13 c-stores in Florida and Georgia from Publix Super Markets Inc. As a result of these transactions, Couche-Tard’s network in the Southwest division includes 271 company-operated stores and six locations under wholesale or franchise agreements, 414 company-operated stores in the Florida division and 279 stores in the Southeast division.
Susser Holdings Corp.
Susser Holdings Corp. had a significant year in terms of earnings, acquisitions and new store development. The company reported same-store merchandise sales growth of approximately 3.4% for the third quarter and 3.3% for the first nine months of 2013. Retail average per-store fuel volume growth was 5.6% for the third quarter and 5.1% for the first nine months of the year. Total gallon growth was estimated to be 8% to 9% for the third quarter and 6% to 6.5% for the first nine months. Susser Holdings opened 10 new large-format Stripes c-stores during the third quarter and closed one smaller store. Through the first nine months of 2013, the company has opened a total of 20 new stores and closed three. The larger-format stores are about 7,000 square feet—twice the industry average—and are designed to accommodate the company’s Laredo Taco Company foodservice program. Susser operates a total of 576 convenience stores in Texas, New Mexico and Oklahoma under the Stripes banner, of which 371 include a restaurant. The company and its affiliate Susser Petroleum Partners LP also have a total of 587 contracted branded sites in the wholesale sector, with 97 consignment locations and 490 other independent branded dealer contracts.
In November, Susser announced that it had agreed to purchase all of the convenience-store assets and fuel distribution contracts of Sac-N-Pac Stores Inc. and 3W Warren Fuels Ltd., consisting of 47 c-stores in the corridor between San Antonio and Austin. 3W Warren Fuels supplies about 65 million gallons of motor fuel to the 47 Sac-N-Pac locations and to about 20 independent dealer locations. The transaction is expected to close during the first quarter of this year.
Other Notable M&A Transactions
▶ GPM Investments LLC acquired the Southeast division of VPS Convenience Store Group LLC, which consists of 263 company-operated stores and 33 dealer locations in the Southeast. GPM also purchased five Get & Zip Convenience Stores from Hurst Harvey Oil Co. Inc., a family-owned and -operated business in Virginia, which brings the total of stores GPM owns in Virginia to 55. As a result of these transactions, GPM operates 467 company stores and supplies 143 dealer locations, for a total of 610 stores in 10 states.
▶ Lehigh Gas Partners LP purchased 30 gasoline stations in the Knoxville, Tenn., market from Rocky Top Markets LLC and Rocky Top Properties LLC. As part of that transaction, Lehigh entered into leases for four stations, assumed seven third-party supply contracts and purchased certain equipment and other assets at the sites for a total consideration of $36.9 million. In a complementary acquisition, Lehigh purchased 14 Zoomerz gas stations in eastern Tennessee from Rogers Petroleum Inc. and affiliates, assumed the leases for three stations and purchased certain other assets and equipment at the 17 sites for a total consideration of $21.1 million. Lehigh also acquired 45 independent dealer supply contracts, five sub-jobber supply contracts and other assets from Manchester Marketing Inc. for $11.1 million.
▶ Valero Energy Corp. completed the spinoff of its retail business in a tax-free distribution to shareholders. The newly created entity, CST Brands Inc., trades on the NYSE under the symbol CST. CST Brands has approximately 1,900 locations in the United States and Canada, with $13 billion in revenues in 2012. CST Brands opened 15 new stores in the first nine months of 2013.
▶ Tesco PLC completed the sale of most of its Fresh & Easy Neighborhood Markets Inc. small-format grocery business to YFE Holdings Inc., an affiliate of Yucaipa Cos.
▶ TravelCenters of America LLC acquired 31 Minit Mart locations for $67 million from Fred’s Minit Mart LLC of Bowling Green, Ky. Of the 31 stores being acquired, 28 are in Kentucky and three are in Tennessee. These stores generally include 10 fueling positions and have about 5,000 square feet of interior space. During 2012, these 31 stores dispensed about 38 million gallons of fuel.
▶ Atlas Oil Co. purchased most of the assets, including 20 gas 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 metro Detroit area and 50 retail fuel supply agreements that are mostly branded Marathon and Speedy.
▶ South Florida Commercial Properties LLC, an affiliate of Marvin Hewatt Enterprises of Lawrenceville, Ga., acquired 20 Chevron stations in South Florida.
▶ PAPCO Inc. acquired the “Tidewater retail assets”—23 Shell-branded gas stations, one Exxon location in southeastern Virginia and various supply contracts— from SMO Inc., a wholly owned subsidiary of The Wills Group Inc.
▶ U.S. Oil, the petroleum and renewable- energy distribution division of U.S. Venture Inc., acquired Combined Oil, a branded wholesale fuel supply business that supplies more than 160 c-stores throughout Wisconsin, Illinois, Indiana and Kentucky.
Other Oil Company Initiatives
▶ Tesoro Corp. sold all of its interests in Tesoro Hawaii LLC to Hawaii Pacific Energy LLC for about $225 million. Tesoro Hawaii operates the Kapolei refinery, a network of about 30 retail stations and associated logistical assets. Hawaii Pacific Energy LLC is a wholly owned subsidiary of Par Petroleum Corp. of Houston. Tesoro also acquired BP’s fully integrated Southern California refining and marketing business, including the Carson, Calif., refinery and retail network. 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, the ARCO brand and other trademarks, and a master franchisee license for the ampm c-store brand.
▶ Marathon Petroleum Corp. (MPC) announced that it would invest $925 million to grow the Speedway c-store segment. Marathon has several new stores under construction in existing markets and is evaluating potential new markets for Speedway. An MPC subsidiary, Speedway owns and operates 1,470 stores in nine states. Speedway intends to add 60 to 65 new or rebuilt stores during each of the next three years.
Growth Initiatives
Several major industry players have continued their growth strategies in both existing and new markets.
▶ Wawa Inc. announced the grand opening of its 18th store in the Orlando, Fla., market, marking its 27th store to open in Florida. Wawa planned to open 25 stores in Florida in 2013 and intends to open 25 stores over each of the next two years; it projects that it will open 100 stores in Florida within the next five years.
▶ Wawa, QuickChek and 7-Eleven are all targeting northern New Jersey for expansion. QuickChek and Wawa are aggressively seeking prime locations in Bergen and Passaic counties.
▶ Kum & Go LC continues its expansion in existing and new markets, and it recently opened a new store in Bentonville, Ark., bringing the total number of stores in that state to 42. Kum & Go operates 420 c-stores in 11 states.
▶ Casey’s General Stores Inc. is also continuing its expansion strategy and has stated that it will build or acquire 70 to 105 stores in its fiscal year, which began May 1. Casey’s also plans to replace 20 stores and complete 25 major remodels. A significant number of the new stores will be in new markets in Arkansas, Tennessee, Kentucky and North Dakota, and it will also “fill in” locations in existing markets.
Divestiture of Nonstrategic Assets
Publix Super Markets Inc. sold its PIX fuel and c-store chain. The chain, consisting of 14 stores in Florida, Georgia and Tennessee, was sold to two buyers. Circle K Stores Inc. purchased the 13 stores located in Florida and Georgia, and Max Arnold & Sons of Hopkinsville, Ky., purchased the Tennessee location. NRC Realty & Capital Advisors LLC served as financial adviser to Publix in connection with the sale.
Mutual Oil Co. Inc. sold 19 gas station and c-store wholesale assets to multiple buyers so that it could focus exclusively on its wholesale business. The purchasers included a subsidiary of Global Partners LP and various regional jobbers and individual store operators.
Getty Realty Corp.
Getty Realty Corp. continued the process of successfully repositioning the remaining properties in its portfolio that were previously leased by Getty Petroleum Marketing Inc., its lessee that had fi led bankruptcy in December 2011. During 2013, the company continued the sale of properties through its sealed-bid sale program with NRC Realty & Capital Advisors LLC and also identified 108 more gasoline stations and properties for sale under this program. The sale of most of those properties closed during the year, with the remainder anticipated to be closed during the first quarter of 2014.
Bankruptcies
Eugene Crane, as Chapter 11 trustee, sold five former BP Connect operating c-stores with gasoline in the Chicago metro market. All of the sites were sold to Atlas Oil Co. NRC Realty & Capital Advisors LLC was engaged by the trustee in connection with the sale. The sale of assets in the Jump Oil Co. Inc. Chapter 11 bankruptcy proceeding was completed recently. Lion Petroleum of St. Louis purchased 32 locations, Casey’s General Stores Inc. purchased four sites and other buyers purchased the remaining 12 sites.
Conclusion
Although most of the transactions that were concluded during the year were private ones in which the purchase prices and EBITDA multiples were not publicly reported, it is safe to assume, based on the information available, that the demand for quality assets and companies remains extremely high and that the demand for such assets far exceeds the supply. Purchase price multiples for quality assets continue to increase, particularly in certain areas of the country where real estate prices are high and it is difficult to either find quality locations for new convenience stores or obtain the necessary zoning and permits to build them. In addition, more lenders and other financial providers are entering the c-store arena or expanding their presence in it, offering reasonable financing terms for qualified operators who want to make acquisitions or grow through new store development. Both the senior debt and sale-leaseback financing markets were robust throughout 2013 and appear to remain active and viable this year as well. All of these factors should make for a very interesting and active 2014 in terms of merger-and-acquisition activity.
Dennis Ruben is executive managing director of NRC Realty & Capital Advisors LLC, Scottsdale, Ariz.
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