58 CSP October 2011 Done Deals Twilight rounds of major-oil selloffs reveal lead players, set stage for market change BY ANGEL ABCEDE & STEVE HOLTZ [email protected] & [email protected] o listen to those in the thick of buying and selling convenience stores today, the pumps-and-canopy box is a living entity, a fluid force with the potential for bounty in a time of prolonged recession. TAt the sunset of an unprecedented major-oil retail selloff, Roger Woodman of Morgan Keegan describes the rarity of a high-volume asset much like a golden-egg-laying goose that large “strategic buyers” must now compete for. Tom Kelso of Matrix Capital Markets Group Inc. says the life of a c-store is a cycle of shifting populations, cash flow and buyer-seller expectations that, like ripening fruit, must be sold at its ascent, not its decline. Then Sam Susser of Susser Holdings Corp. talks as if the store were a river of incremental sales, a cornucopia of unlimited potential and ever-increasing same-store profit. This passion for convenience retail is driving what may be considered one of the industry’s most robust expansion periods in decades, involving some of the channel’s best-known names. 7-Eleven is in the midst of what it says will be its biggest store growth year since 1986. Consummate acquirer Alimentation Couche-Tard and its Circle K brand are finding locations in the company’s sweet spot of “quality stores at a fair price.” And Casey’s General Stores is working hard to maintain shareholder value with modest but thoughtful deals. * The number of c-stores that have changed hands in the six months since March 2011 Source: CSP Daily News and cspnet.com CSP October 2011 59 Scorecard for Market Change With headline-making mergers and acquisitions happening multiple times in the past few months, clear leaders have emerged. Then add regional titans with new-build expansion, and the bigger picture emerges. Here’s a snapshot: 1. 7-Eleven: Since its coup last 7. Marathon (Speedway): ▶ EZ Energy USA: This summer, year of 183 ExxonMobil sites Winning a tussle for about the chain bought 30 sites, in Florida, the chain has picked 50 stores from the bankrupt bringing it to 120. up 188 Wilson Farms locations Gas City chain and splitting in New York state and 31 more its Speedway chain from its ▶ CEFCO: Bought 69 Food Fast ExxonMobil stores in Dallas. In Marathon jobbers were big stores this summer. WA MT ND terms of M&A, 2011 will be its moves for 2011. Landmark Industries: Picked “biggest year since 1986.” ▶ MN 8. Sunoco: On an aggressive up 80 Houston stores from the ME NH 2 . Circle K: Parent company growth spurt, the company ExxonMobil selloff this summer. SD WI Alimentation Couche-Tard is bought 14 stores this past OR VT Speedy Stop: Won the bid ID fi nding “quality stores at a fair summer, but since the start ▶ WY MI for 61 stores in Austin and San NY price,” having bought 322 of 2010 it has amassed 215 IA MA Antonio from ExxonMobil. ExxonMobil sites in California and new sites. NE 33 in Louisiana. It purchased 43 PA ▶ Victory Petroleum: Picked up RI in the Mid-Atlantic, the Midwest 9. Mid-Atlantic Convenience IL IN OH 38 ExxonMobil sites in Miami. NV and Canada this summer. Stores (MACS): Built from the UT CO starting point of the Uppy’s chain WV CT ▶ Empire Petroleum: KS MO 3. The Pantry: In a bit of a and an assembly of ExxonMobil This summer completed a KY VA turnaround, the acquisition- sites, the 300-store chain is NJ $30.5-million equity offering. CA focused chain found 114 sites looking to double its size over the OK TN NC that don’t fi t their current next three years. ▶ Sheetz: The chain is AR DE strategy. expanding in Ohio, North 10 . GPM Investments (Fas AZ NM Carolina and West Virginia, with SC MD 4 . Casey’s General Stores: Mart/Shore Stop): Having a goal of taking its 400-store MS AL GA After last year’s hostile takeover just closed on a $50-million count up to 500. attempt by Couche-Tard, Casey’s credit facility, the company says 2. “Quality TX LA has been more aggressive, it will improve cash fl ow and ▶ Kum & Go: Planning for 10 stores at a picking up 22 stores from aggressively grow the business. stores in Cedar Rapids, Iowa, and fair price.” Kum & Go and planning new another 25 in central Arkansas. stores in Arkansas. It promises ▶ VPS Convenience Stores: shareholders 4% to 6% annual Funded via an investment fi rm, ▶ Wawa: Projecting as many AK FL store growth. VPS takes advantage of sale- as 100 stores in Florida, having leaseback opportunities and sees reportedly signed leases in HI 5. Susser: Stripes was on tap improved lending rates. Orlando. to build 22 new stores, a record year for construction. ▶ Delek/MAPCO: The company is moving up the supply chain 6. QuikTrip: Charlotte, N.C., is with the purchase of a refi nery a target with 60 stores planned and related transportation system. over the next fi ve years. Discussions with more than a dozen players to fuel distributors with expansive in the year, bidding battles in Chicago for sources on the state of mergers and dealer networks—evolve and strengthen. sites held in bankruptcy made headlines, acquisitions within the channel quickly “People are looking to improve busi- as did news of regional players claiming zero in on store counts, valuations and ness models, refi ne business models,” says new markets and others who assembled the competitive landscape, with several Kelso of Baltimore-based Matrix Capital. credit facilities and are ready to “aggres- newly announced purchases peppering “Some may [even] go back to old models sively” re-enter the buyer’s market. the wires all summer. (See chart, above.) that tie supply more closely to [retail].” Obviously, the underlying motive is But ultimately the latest round of retail Recently, buyers for ExxonMobil growth. Whether it’s better economies of selloffs is a test of wills, as business para- properties in Southern California, Texas scale, a push into new markets or investor digms—from foodservice-rich regional and Louisiana came to light. But earlier pressure, central to the current window of 60 CSP October 2011 Top 10 1 2 3 4 5 6 7 8 9 10 4. 4% to 6% 1. 8. annual store “Biggest Amassed WA ND growth year since 215 new MT 1986.” sites MN ME NH SD WI OR ID VT WY MI NY IA MA NE PA IL IN OH RI NV 7. UT CO WV KS MO CT KY VA CA NJ OK 4. TN NC AR DE AZ NM 3. SC 114 sites MD MS AL GA that don’t fi t 1. TX LA 2. 9. Double 6. 60 stores 1. its size planned AK FL 10. HI $50-million 5. credit A record 7. year for Splitting construction change is the need for sustained growth. proving its resilience during the reces- major-oil packages stoking the heat. Influencing the outcome of all this sion, c-stores are becoming an attractive ▶ Cheap Money. Continuing low activity are several developing trends: place for investors to park their money, interest rates lure buyers, but they favor ▶ Big Consolidators Taking the with numerous platforms already in place those who can invert the equation to Upper Hand. With fi nancial facilities in in the Northeast and Midwest actively outbid their competitors. place and cash on hand, the household scouting for new deals. ▶ Willing Lenders. The lending com- names, chief among them 7-Eleven and ▶ Higher Valuations. Though not munity appears to be loosening up, offer- Circle K, have been making moves and as high as pre-recession 2007, sources ing better debt ratios for stores as well as winning bids. say valuations are moving back in some for sale-leasebacks. ▶ Investor Action. With the industry markets to above 6x, with evaporating ▶ Market Rebound. With those CSP October 2011 61 Defining Growth, Competition When posed questions about growth and competitive forces, retailers seem more inclined to look for answers from within. At the same time, they’re keenly aware of who may be their biggest threat. “Valuations are very good across the What growth strategy is a priority board, but every business has to be evalu- for your company? ated separately,” he says. “Not all assets are Increase same-store sales 45.7% equal; not all markets are the same.” Acquisition 21.6% Multiples tied to publicly traded com- Cut expenses 15.5% panies have “gone up dramatically” in New builds 12.1% recent months, says Woodman. Though None of the above 5.1% far from the 9.6x highs back at the end of 2006, valuations are rising from the Source: CSP Daily News Poll. Based on 116 respondents. mid-2009 lows of 5.3x and were at 6.9x as of late summer, according to his com- If one of the competitors below entered your market, which one would be the biggest threat? pany’s fi gures. (See chart on p. 64.) In the fi rst half of 2011, total M&A transaction QuikTrip 36.7% value increased about 50% over the same Sheetz 18.4% period 2010, Woodman says, though the 7-Eleven 12.7% number of transactions is smaller. Wawa 10.3% The issue of publicly traded com- Speedway 5.6% panies is also one of scale. Chains with Circle K 5.1% operational effi ciencies and buying power Fas Mart 0.9% can often outbid smaller operators.