Cedric C. Fortemps, CFA Spencer Cavalier, CFA, ASA Co-Head of Downstream Energy & Co-Head of Downstream Energy & Convenience Retail Group Convenience Retail Group 804.591.2039 667.217.3320 [email protected] [email protected] DISCUSSION TOPICS
I Industry Equity Returns Analysis 2 II M&A Activity Update 8
Have a Question? Email Spencer at [email protected] 2 DISCLOSURES
The contents of this Presentation are presented for informational purposes only by Matrix Capital Markets Group, Inc. and MCMG Capital Advisors, Inc. (“Matrix”), and nothing contained herein is an offer to sell or a solicitation to purchase any of the securities discussed.
The information contained in this Presentation is based on estimates and assumptions about circumstances and events that have not yet taken place, may not have an empirical basis, may be subject to variation and may be inherently unpredictable. While Matrix believes the information provided in this Presentation is reasonable, it is provided “AS IS” and without warranty of any kind, either expressed or implied, including, but not limited to, the implied warranty of merchantability, fitness for a particular purpose, or non-infringement.
Accordingly, there can be no assurance that information relied upon in preparing this Presentation will prove accurate or that any of the projections will be realized. It is expected that there will be differences between actual and projected occurrences, and actual occurrences may be materially greater or less than those contained in this presentation. Matrix assumes no responsibility for errors or omissions in this Presentation or other documents which may be contained or referenced in, or linked to this Presentation. Any recipient of this Presentation is expressly responsible to seek out his or her own professional advice with respect to the information presented.
Have a Question? Email Spencer at [email protected] 3 Industry Equity Returns Analysis CONVENIENCE RETAIL COMPANIES INDEX VS S&P 500
10%
5% 2.2% 0%
-5% -6.2%
-10%
-15%
-20%
-25% -25.1%
-30% -31.0% -35% 1/2/2020 1/16/2020 1/30/2020 2/13/2020 2/27/2020 3/12/2020 3/26/2020 4/9/2020 4/23/2020 5/7/2020 5/21/2020 C-Store Index S&P 500 Index The Convenience Retail Companies Index is an equal-weighted index comprised of the following entities: • Alimentation Couche-Tard, Inc. (TSE: ATD-B) • Casey’s General Stores, Inc. (NASD: CASY) • Murphy USA Inc. (NYSE: MUSA) Source: Data as of 5/26/20 reflects daily dividend adjusted stock/unit prices provided by S&P Capital IQ
Have a Question? Email Spencer at [email protected] 4 Industry Equity Returns Analysis WHOLESALE FUELS FOCUSED COMPANIES VS ALERIAN MLP INDEX
10%
0%
-10%
-20%
-24.5% -30%
-33.9% -40%
-50%
-60%
-62.2% -66.5% -70% 1/2/2020 1/16/2020 1/30/2020 2/13/2020 2/27/2020 3/12/2020 3/26/2020 4/9/2020 4/23/2020 5/7/2020 5/21/2020
Wholesale Fuels Focused Companies Index Alerian MLP Index The Wholesale Fuels Focused Companies Index is an equal-weighted index comprised of the following entities: • CrossAmerica Partners LP (NYSE: CAPL) • Global Partners LP (NYSE: GLP) • Parkland Fuel Corporation (TSE: PKI) • Sunoco LP (NYSE: SUN) Source: Data as of 5/26/20 reflects daily dividend adjusted stock/unit prices provided by S&P Capital IQ
Have a Question? Email Spencer at [email protected] 5 Industry Equity Returns Analysis RESILIENCY OF THE DER INDUSTRY VS S&P 500
60.00% 50.8% 48.7% 44.4%
40.00%
28.1% 26.4% 25.4% 24.0% 23.1% 24.1% 22.6% 20.1% 17.5% 21.5% 20.00% 16.2% 11.7% 9.6%
0.00%
-6.00%
-20.00% -22.1% -22.8% -25.3% -26.8%
-33.8% -40.00%
-43.3% -44.9%
-60.00% Jan 95 - Mar 00 Mar 00 - Oct 02 Oct 02 - Oct 07 Oct 07 - Mar 09 Mar 09 - Feb 20 Feb 20 - Mar 20 Mar 20 - May 20 Jan 95 - Present
Bull Market Bear Market Bull Market Bear Market Bull Market Bear Market Bull Market S&P 500 C-Store Index Wholesale Fuels Index (1) Data compares average annual compound return of indices. Returns for periods of less than one year are absolute for determining average annual compound return (2) To read more on the resiliency of the DER Industry: https://matrixcmg.com/wp-content/uploads/2020/04/Matrix-Capital-Markets-Perspective_April-2020.pdf Source: Data as of 5/26/20 reflects daily dividend adjusted stock/unit prices provided by S&P Capital IQ
Have a Question? Email Spencer at [email protected] 6 Industry Equity Returns Analysis GROSS PROFIT ANALYSIS – BRANDED FUELS WHOLESALER
40.00%
20.00%
0.00%
-20.00% -31.8%
-31.9% -40.00%
-53.6%
-60.00%
-80.00%
-100.00% 1/6/2020 1/20/2020 2/3/2020 2/17/2020 3/2/2020 3/16/2020 3/30/2020 4/13/2020 4/27/2020 5/11/2020 5/25/2020
% Change in Margin % Change in Volumes Est. % Change in Gross Profit
(1) Estimated % change in gross profit on CPG basis calculated by assuming wholesale contract terms of rack plus 1 CPG, with wholesaler also getting 1.25% prompt pay discount (2) Weekly cost of fuel data excludes Federal, State, and Local Taxes ; Source: Weekly national average cost and motor fuels volume data from OPIS
Have a Question? Email Spencer at [email protected] 7 DISCUSSION TOPICS
I Industry Equity Returns Analysis 2 II M&A Activity Update 8
Have a Question? Email Spencer at [email protected] 8 M&A Activity Update FACTORS DRIVING CONSOLIDATION IN THE C&G MARKET
The consolidation of the petroleum marketing and convenience store industry is accelerating, primarily due to:
Factors that are likely permanent: Industry maturity Continued expansion by highly recognized c-store chains, including with larger format NTIs Expenses increasing faster than gross profits is putting pressure on operators Continuing need to reduce product acquisition costs and spread overhead across a wider base The needs of existing and soon-to-be public companies to grow revenues and cash flow Cost of capital differences between smaller and larger operators Generational issues (i.e. no potential or desired transition to next generation of family) Factors that are subject to change: Historically low tax rates and favorable accelerated depreciation tax rules . CARES Act added a five-year carryback period for net operating losses (NOLs) incurred in 2018, 2019 and 2020 and repealed the 80% limitation that existed for those NOLs . CARES Act increases the limitation on the deductibility of interest expense from 30% to 50% for tax years beginning in 2019 and 2020 Potentially constrained fuel volumes for immediate future further accentuates need for acquisitions to grow Low interest rates for well-capitalized companies and low overall cost of capital Strong interest in the industry by private equity funds and international companies Capital availability across the full capital stack for resilient industries and healthy companies Ability to sell with strong performance over last few years, especially retail fuel margins
Have a Question? Email Spencer at [email protected] 9 M&A Activity Update M&A ACTIVITY BY YEAR Criteria for transactions included in tables below . Transaction has closed and included at least 10 convenience stores or 25 supply accounts, with majority in U.S. . Convenience stores and/or fuels distribution business was substantial component of transaction . Sale/leaseback transactions not included . Private equity buyer type only the case for platform acquisition; considered strategic buyer acquirer for add-ons There were 50 unique buyers for the 77 transactions in 2018 and 2019
Buyer Company Type: 2012 2013 2014 2015 2016 2017 2018 2019 Totals Private Company 14 10 14 9 17 13 27 19 123 Public Corporation 14 9 7 17 6 9 13 6 81 Master Limited Partnership 6 4 8 6 6 3 6 1 40 Private Equity Fund 0 1 1 1 4 0 2 3 12 Totals 34 24 30 33 33 25 48 29 256
60
50 2 6 40
1 13 8 Year Average 30 6 1 4 6 3 8 6 1 1 3 6 20 14 4 6 7 17 9 9 27 10 17 19 14 14 13 10 9 0 2012 2013 2014 2015 2016 2017 2018 2019
Private Company Public Corporation Master Limited Partnership Private Equity Fund
Have a Question? Email Spencer at [email protected] 10 M&A Activity Update M&A ACTIVITY YEAR-TO-DATE COMPARISONS
10 closed M&A transactions for fuels distribution, petroleum marketing and convenience store businesses through May 15, 2020 is equal to the historical average of last 8 years
Fuels Distribution and Convenience Store Industry Transactions Completed Prior to May 15th:
16
3 2 12 2 1 2 1 9 Year Average 4 2 3 3 1 8 1 5 1 4 10 4 8 1 8 6 6 3 4 4 5 0 1 2012 2013 2014 2015 2016 2017 2018 2019 2020 Private Company Public Corporation Master Limited Partnership Private Equity Fund
Have a Question? Email Spencer at [email protected] 11 M&A Activity Update ALL INDUSTRIES – U.S. M&A ACTIVITY
Closed M&A transactions in all industries in the U.S. in 1Q 2020 were at lowest volume since Q2 2013
Quarterly Domestic Deal Volume – All Industries
3,500
3,000
2,500
2,000
1,500
1,000
500 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Pitchbook Q1 2020 North American M&A Report
Have a Question? Email Spencer at [email protected] 12 M&A Activity Update RECENT M&A TRANSACTIONS
Closing Date Buyer Seller Primary Business 4/23/2020 Refuel LLC Double Quick, Inc. Petroleum Marketer 4/20/2020 U.S. Venture Inc. Martin Eagle Oil Co. Fuels Distributor 4/15/2020 CrossAmerica Partners LP Dunne Manning Petroleum Marketer 3/27/2020 Alimentation Couche-Tard CrossAmerica Partners LP Petroleum Marketer 3/5/2020 PetroCard, Inc. Masco Petroleum Fuels Distributor 3/2/2020 7-Eleven, Inc. 7-Eleven Stores Petroleum Marketer 2/14/2020 Jordan's Kwik Stops Nimocks Oil Co. Petroleum Marketer 2/14/2020 Parkland Industries Ltd. Kellerstrass Oil Company Fuels Distributor 2/5/2020 Majors Management, LLC McPherson Cos., Inc. Fuels Distributor 1/24/2020 Alimentation Couche-Tard I-90 Fuel Services, Inc. Petroleum Marketer
Refuel Acquisition of Double Quick
• Double Quick, Inc. directly operated 48 convenience retailing and petroleum marketing locations along with five stand-alone QSR sites across its footprint in the Mississippi Delta and Eastern Arkansas • FR Refuel, LLC, with nearly 100 stores in the Southeast U.S. is a portfolio company of First Reserve, a leading global private equity investment firm exclusively focused on energy • Acquisition allowed FR Refuel to expand further in Southeast and Double Quick’s foodservice programs, including Church’s Chicken and Krystal franchises provide reverse synergy opportunities
Have a Question? Email Spencer at [email protected] 13 M&A Activity Update RECENT M&A TRANSACTIONS (CONT’D)
Closed: 7-Eleven, Inc. Completes Acquisition of Independent Oklahoma Stores
• 7-Eleven, Inc. acquired more than 100 independently operated 7-Eleven branded convenience stores in the Oklahoma City metropolitan area • The independent Oklahoma City based chain has carried the 7-Eleven name for 67 years and differed slightly from the national chain through their own food and beverage branding as well as a separate loyalty program • The acquisition, which closed on March 2nd, 2020, brings the total number of 7-Eleven stores to more than 9,300 in the United States
Canceled: Alimentation Couche-Tard Bid to Acquire Caltex Australia • On April 19th, 2020 Alimentation Couche-Tard, citing the uncertainty caused by COVID-19, decided to drop its $5.6 billion bid for Australian fuel retailer Caltex Australia • Caltex is a transportation fuels supplier, convenience retailer and integrated oil refining and marketing company. In addition to their refining assets, they have a network of more than 1,900 retail locations • Couche-Tard, which had secured funding commitments for the deal, continues to see Caltex as a strong strategic fit and plans to re-engage once there is sufficient clarity regarding COVID-19
Have a Question? Email Spencer at [email protected] 14 M&A Activity Update RECENT M&A TRANSACTIONS (CONT’D)
Announced: GPM Investments LLC to Acquire Empire Petroleum Partners • Announced on December 18th, 2019, GPM Investments LLC signed an agreement to acquire the wholesale fuel distribution operations and retail assets of Empire Petroleum Partners LLC • The acquisition will expand GPM’s operations into 10 new states and add 1,457 wholesale fuel locations as well as 77 retail stores • The combined entity will distribute 2.5 billion gallons of fuel annually across 33 states and Washington D.C. • Transaction is expected to close in the first half of 2020
Canceled: Offen Petroleum Bid to Acquire Bosselman Energy
• Originally signed March 11th, 2020, Offen Petroleum, owned by private equity group Court Square Capital, was set to acquire the fuels distribution and transportation assets of Bosselman Energy and Bosselman Carriers • The combined entity would have distributed more than 1.3 billion gallons of motor fuel annually across 16 states • On May 20th, 2020, due to the COVID-19 pandemic, the two parties announced that they have mutually agreed to end the deal • The companies cited numerous challenges in completing the due diligence process and decided to redirect their focus into coping with the pandemic
Have a Question? Email Spencer at [email protected] 15 M&A Activity Update ANY PREDICTIONS NEED TO BE WRITTEN IN PENCIL
Have a Question? Email Spencer at [email protected] 16 M&A Activity Update REASONS TO BE BEARISH 2009-2019 – S&P WAS UP 495%
To read more on remaining disciplined during uncertain times: https://matrixcmg.com/wp-content/uploads/2020/04/Matrix-Capital-Markets-Perspective-April-2020.pdf
Have a Question? Email Spencer at [email protected] 17 M&A Activity Update IMPACTS ON INDUSTRY- FUTURE IS IN THE EYE OF THE BEHOLDER
Bullish Case Bearish Case Convenient, quicker retail transactions with Potential second wave of significant volume fewer other customers in store will be losses if stay-in-place orders are required to preferred by consumers over larger box retail be put back in place environments Longer term or permanent demand Permanent closures of other foodservice destruction from portion of workforce that establishments will allow convenience stores will no longer commute to offices to gain market share of prepared food sales Unemployment rates will stay elevated and More driving to destinations for vacations due consumer consumption will be impacted to concerns with safety of air travel and negatively cruises Need to increase compensation to front line workers due to risks of potential exposure to More workers driving to work due to virus preference for personal space and safety concerns with public transportation Auto manufacturer losses and lower fuel prices could delay electric vehicle penetration Softening labor market Lower credit card fees from lower fuel prices Lower fuel prices will help consumer discretionary income
Have a Question? Email Spencer at [email protected] 18