Insider’s View: Q2 2015 M&A Review
SCOTTSDALE, Ariz. —The pace of mergers and acquisitions in the convenience-store industry showed no signs of subsiding during the second quarter of 2015. Three very large transactions were announced or completed during the quarter.
First, 7-Eleven Inc. agreed to acquire Tedeschi Food Shops and its 182 locations in the Northeast. Second, United Pacific, formerly known as United Oil Co., completed the acquisition of 251 gas stations and convenience stores from Pacific Convenience & Fuels LLC. Finally, Global Partners LP completed the acquisition of a portfolio of 97 owned and leased gas stations and dealer supply agreements from Capitol Petroleum Group for approximately $156 million.
There were also many smaller transactions that were either announced or completed during the second quarter. The common themes throughout all of these transactions:
- They were completed by one of the major players in the industry (either a master limited partnership, a major convenience-store owner and operator, or a private-equity sponsor).
- Premium prices were paid for quality assets in high-growth and strategic markets.
- There continues to be an unlimited appetite for acquisitions of all sizes and types, with there being far more interested buyers than sellers.
In May, 7-Eleven Inc. entered into an agreement to acquire Tedeschi Food Shops, a 92-year-old, family-run, traditional convenience-store chain. Tedeschi only sold fuel at 15 of its 182 locations, which are all located in the Northeast. The deal will more than double 7-Eleven’s footprint in greater Boston and New Hampshire, where it currently operates and franchises 164 convenience stores.
CST Brands Inc./CrossAmerica Partners LP
CrossAmerica Partners LP, with partner CST Brands, entered into a definitive agreement to acquire the One Stop convenience-store chain based in Charleston, West Virginia. The transaction includes 41 company-operated One Stop convenience stores, four commission-agent sites, nine dealer fuel-supply agreements and one freestanding franchised quick-service restaurant. Of the 45 company-operated and commission agent sites, 30 are owned in fee. Five of the company-operated locations have quick-service restaurants. For the year ended Dec. 31, 2014, the aggregate 54 sites sold approximately 36 million gallons of motor fuel primarily under the Marathon and Exxon fuel brands, and had approximately $40.5 million in inside sales.
Alimentation Couche-Tard/Circle K
Cinco J Inc., dba Johnson Oil Co. and Tiger Tote Food Stores Inc., announced that Alimentation Couche-Tard’s Circle K closed on the acquisition of Tiger Tote’s 21 “The Tote” convenience stores and Johnson Oil’s 182 dealer locations. The stores will be rebranded to the Circle K brand, while the retail fuels and dealer locations will retain their current fuel brands through Circle K’s National Wholesale Fuel branding agreements.
Energy Transfer Partners LP/Sunoco LP
Sunoco LP announced that it has acquired eight Pico convenience stores in south central Texas from Westex Capital Ltd. of Del Rio, Texas. Sunoco LP will lease the stores to Stripes LLC, the Corpus Christi, Texas-based retail chain owned by Sunoco LP’s parent, Energy Transfer Partners LP. Stripes will operate the stores and will purchase all of the fuel sold at the locations from Sunoco LP. Six of the eight sites are currently branded Valero. The stores are located in the San Antonio area. NRC Realty & Capital Advisors LLC, Chicago, served as exclusive financial advisor to Westex in connection with the transaction.
In another Texas transaction, Susser Petroleum Property Co. LLC has emerged as the lead bidder in an auction for the assets of Aziz Convenience Stores LLC in a chapter 11 bankruptcy proceeding pending in McAllen, Texas. The assets consist primarily of 28 Quick Stop gas stations and convenience stores in Hidalgo County, Texas. Potential bidders have until July 15 to submit a qualifying bid. The auction is scheduled for July 20.
CONTINUED: More Notable Transactions
Other Notable M&A Transactions
- United Pacific, formerly known as United Oil Co., completed the acquisition of a portfolio of 251 gas stations and convenience stores from Pacific Convenience & Fuels LLC. The acquired properties are located in California, Nevada, Oregon, Washington and Colorado, and operate under the My Goods Market and Circle K brands and offer 76- and Conoco-branded motor fuels. As a result of this transaction, United Pacific’s network now includes 319 company-operated stores and 60 fee-operated and leased locations. Fortress Investment Group LLC, New York, a diversified global investment management firm, acquired United Oil in July 2014 for an estimated $500 million.
- Global Partners LP completed the acquisition of a portfolio of 97 primarily Mobil- and Exxon-branded owned and leased gas stations and seven dealer supply agreements from Capitol Petroleum Group. The properties are located in the New York City and Prince George’s County, Maryland/Washington, D.C. markets. The purchase price, subject to closing adjustments, was approximately $156 million. In 2014, the acquired assets sold approximately 125 million gallons of fuel.
- Southwest Georgia Oil Co. Inc. announced the acquisition of 44 S&S Food Stores in Florida from Scaff’s Inc. Southwest Georgia Oil intends to maintain the S&S convenience-store brand, but will switch from BP to Marathon fuel at several locations.
- Imperial Oil Ltd., a leading Canadian integrated oil producer, refiner and marketer, announced plans to sell approximately 500 of its company-owned Esso gas stations and has begun to accept proposals from interested bidders. Calgary, Alberta-based Imperial Oil, which is majority-owned by Exxon Mobil, has broken up the 500 stations into a number of smaller packages that are split geographically, according to various sources. The assets are generally located in densely populated, high-traffic urban areas and many have car washes and Tim Hortons doughnut and coffee outlets. Analysts have speculated that the entire portfolio could be worth as much as $1 billion (Canadian; $832 million U.S.).
- ArcLight Capital Partners, a Boston-based private-equity firm, agreed to acquire the Gulf Oil fuel business from the Haseotes family. Joe Petrowski, formerly the chief executive officer of Cumberland Farms (also owned by the Haseotes family), will serve as the head of the new company.
- TravelCenters of America LLC, operator of the TA and Petro Stopping Centers travel center and the Minit Mart convenience-store brands, acquired 19 gas stations and convenience stores in Missouri and Kansas from GasMart USA, Overland Park, Kansas, for $27 million. TravelCenters said that it expects that the convenience stores at these locations, which average approximately 3,900 square feet in size, will be rebranded as Minit Mart, and that it may add quick-service restaurants at some of these locations.
Master Limited Partnerships (MLP)
- GPM Petroleum LP, which distributes motor fuel for the convenience stores of GPM Investments LLC, made an initial public offering (IPO) filing with the U.S. Securities & Exchange Commission (SEC). GPM Petroleum, an MLP spinoff from GPM Investments, is seeking an estimated $100 million from the proceeds of the IPO. As of April 15, 2015, Richmond, Virginia-based GPM Investments controlled more than 500 convenience stores under various brand names, including Fas Mart and Shore Stop, that sell motor fuel, merchandise, food, beverages and other products and services in the Mid-Atlantic, Southeastern, Midwestern and Northeastern United States. For the year ended Dec. 31, 2014, on a pro forma basis, GPM Petroleum distributed 461.7 million gallons of motor fuel to GPM-controlled convenience stores and 68.7 million gallons of motor fuel to third-party customers.
- Empire Petroleum Partners LP also filed a registration statement with the SEC for an IPO to form a master limited partnership. Empire, which currently distributes fuel to more than 1,300 gas stations and convenience stores across 27 states and the District of Columbia, hopes to raise $100 million with the offering. Empire’s fuel distribution network currently covers fuel outlets primarily in Texas, the Southeast, the Great Lakes and the Mid-Atlantic regions. Since 2011, Empire successfully completed 12 acquisitions, increasing its annual volume of distributed motor fuel from 165 million gallons to 919 million gallons in 2014.
CONTINUED: More Growth Initiatives
- Mexican convenience store company OXXO stated that it wants to establish a major presence in Texas and plans to open 900 convenience stores in the next 10 years, investing more than $850 million and creating more than 6,000 jobs. The chain currently operates 12,400 convenience stores in Mexico and Central America. OXXO is part of FEMSA Group, the largest beverage company in Mexico. It is the largest independent Coca-Cola bottler in the world and an investor holding the second-largest equity stake in brewer Heineken. However, a major impediment to OXXO’s plans is a Texas law which prohibits retailers from being owned by firms with ties to the liquor industry. OXXO has asked the state legislature to repeal that law so that the company may begin its acquisitions.
- Wawa Inc. announced the grand opening of its first three convenience stores in the Fort Myers, Fla., area, marking its official entrance into Southwest Florida. Since its entrance into the Florida market in 2012, Wawa has opened 62 stores, located in the Orlando and Tampa markets, with plans to launch throughout the Southwest Coast and Daytona. By year’s end, Wawa will have opened 25 new stores in Florida.
Getty Realty Corp.
Getty Realty Corp. announced the sale of six operating and non-operating gas stations and 27 commercial and retail properties in Connecticut, Maine, Massachusetts, New Hampshire, New York, Pennsylvania and Rhode Island. NRC Realty & Capital Advisors LLC was retained by Getty Realty to coordinate the sale. In June, the company announced that it had acquired the fee-simple interests in 77 convenience stores and gas stations acquired from affiliates of Pacific Convenience & Fuels LLC and simultaneously leased to United Oil Co., for approximately $214 million. The sites are located in several high-growth regions, including northern and southern California, Colorado, Nevada, Oregon and Washington. The properties, which were acquired in connection with the acquisition by United Oil of most of the assets of Pacific Convenience & Fuels, operate under several well-recognized brands, including 76, Conoco, Circle K, 7-Eleven and My Goods Market.
Divestiture of Non-strategic Assets
- Grocery-chain Brookshire Brothers Inc. announced that it has entered into an agreement to sell 26 Polk Pick-It-Up convenience stores in eastern Texas to San Antonio-based Partners Investors C-Stores Ltd. Brookshire Brothers will keep its locations in Hudson, Central Heights, Central and Wells, the company said.
- Cambridge Petroleum Corp. (CPC) announced that it was selling its leasehold interests in seven gas stations and a fuel-supply agreement on one location in Pennsylvania, New Jersey, Connecticut and Rhode Island. All of the sites are former Getty Petroleum Marketing Inc. locations, and CPC will use the proceeds to pay a settlement to the Getty Petroleum Liquidating Trust.
- Thorntons Inc. announced that it was selling eight of the company’s convenience stores as a result of a strategic review.
- Gill Energy purchased Chester, N.J.-based Mohawk Oil Co. Inc. The sale included five fee and leased retail gas station assets with convenience stores, service bays and snack shops, as well as wholesale supply-only accounts and assignment of the branded Sunoco distributor agreement.
- M G Markets Inc., dba Mr. Gas Markets, sold six of its Marathon-branded convenience stores in eastern Tennessee to an undisclosed buyer to shift the focus to its wholesale company, McNutt Oil Co Inc., which sells commercial fuels and lubricants.
Although the second quarter of the year is usually relatively quiet in terms of merger-and-acquisition activity, 2015 certainly proved otherwise. If this is any indication of things to come, it should be a very exciting year.
With fuel margins and inside sales remaining extremely robust in most markets, operators are seeing very strong performances from their convenience-store portfolios. That can be a blessing and a curse.
Many operators are reluctant to sell right now because of the profits they are seeing at their stores. However, as we all know, this will not continue forever.
More importantly, the market has never been hotter for mergers and acquisitions. There is an incredible demand at present for quality companies and assets, and the multiples being paid for those assets has never been higher. Furthermore, interest rates continue at record lows, although there has been talk by the Fed of increased rates in the latter part of this year.
We are seeing a number of companies exploring their options at present. From our perspective, the timing to do this could not be better.
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 firstname.lastname@example.org. He will also headline the Financial Outlook session at the 2015 Outlook Leadership Conference, Nov. 14-16 in Scottsdale, Ariz.