ARKO Advances Growth Strategy With WTG Fuels Acquisition

The deal will expand the retailer's Southwestern footprint and increase its fleet fueling operations.
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RICHMOND, Va. — ARKO Corp. is expanding its Southwestern footprint in key Texas and New Mexico markets with the acquisition of WTG Fuels Holdings LLC.

Subsidiaries of ARKO will pick up the retail, wholesale and fleet fueling assets of WTG Fuels, which owns Uncle's Convenience Stores and GASCARD fleet fueling operations.

Founded in 1976, WTG is a leading Texas convenience store retailer with 24 company-operated c-stores across western Texas. Uncle's offers convenient grocery, beer and fresh food options. The chain is known for its high-quality foodservice, including Uncle's branded fresh food, Hunt Brothers Pizza and Champs Chicken. Certain stores additionally feature walk-in beer caves.

During the 2021 fiscal year, Uncle's sold approximately 28.3 million total fuel gallons, with strong diesel mix and high cents-per-gallon realization. Diesel sales currently comprise more than one-third of the company's overall fuel volume.

The deal for WTG also includes three land parcels and nine independent dealer locations.

In addition, ARKO will acquire WTG's 57 proprietary GASCARD-branded fleet fueling cardlock sites and 52 private cardlock sites, which are strategically located in large industrial areas in west Texas and southeast New Mexico.

ARKO's fleet fueling segment expects to leverage its leading marketing and operations knowledge to manage fleet fueling sites and create value for customers, the company stated.

"We are committed to creating value for our stockholders with a systematic, convenience store-focused long-term growth strategy focused on disciplined and accretive transactions," said ARKO Chairman, President and CEO Arie Kotler. "We believe that we add significant value to acquisitions with our excellent integration capacity, which has helped accelerate the pace of deal making, which in turn improves our business, creates more efficiencies and funds future growth — a virtuous cycle that we believe sets ARKO apart as a leading convenience store operator and acquirer of choice.

"Adding these assets to our family of community brands is perfectly aligned with ARKO's strategy, and we look forward to welcoming WTG employees to our company," he added.

Purchase Details

The total purchase price for WTG Fuels is approximately $140.4 million, plus the value of inventory at closing.

ARKO intends to finance from its own sources approximately $25.4 million of the cash consideration, plus the value of inventory and other closing adjustments. The remaining approximately $115 million is expected to be funded by Oak Street Real Estate Capital, a division of Blue Owl Capital as part of the existing $1.15 billion agreement with the ARKO, according to which Oak Street is expected to acquire certain real estate assets of WTG as part of the transaction. The company would lease such real estate assets from Oak Street.

Using estimated forward looking non-GAAP measures, ARKO expects the acquisition will add approximately $10.6 million of adjusted EBITDA on an annual run rate, after incremental annual rent of approximately $6.9 million to be paid to Oak Street for the aforementioned leases

The closing of the transaction is subject to fulfillment of conditions precedent. There is no certainty that the transaction will close.

A Year of Growth

The deal for WTG marks ARKO's fourth acquisition of 2022. The convenience store retailer recently announced deals for Pride Convenience Holdings and Transit Energy Group. It also closed on its acquisition of Quarles Petroleum Inc. during the third quarter.

The acquisition of WTG's assets highlights ARKO's systematic growth strategy designed to increase cash flow and adjusted EBITDA, the company stated.

Combined, WTG, Pride and TEG are expected to grow the company's base of convenience stores by approximately 15 percent, adding more than 200 retail stores and a pipeline of new-build opportunities.

WTG would greatly expand ARKO's highly accretive fleet fueling segment, growing from 183 sites at the end of the third quarter of 2022 to more than 290 upon closing.

"We believe that Uncle's stores are great sites, and, importantly, we are strategically using our in-house fleet fueling expertise to grow that segment. We are highly focused on our core convenience store business and have been very pleased with the performance of the fleet fueling segment and the cash flow it generates," noted Kotler.

Richmond-based ARKO is one of the largest convenience store operators and fuel wholesalers in the U.S. It operates in four reportable segments: retail, which includes convenience stores selling fuel products and other merchandise to retail customers; wholesale, which supplies fuel to independent dealers and consignment agents; GPM Petroleum, which sells and supplies fuel to our retail and wholesale sites; and fleet fueling, which includes the operation of proprietary and third-party cardlock locations, and issuance of proprietary fuel cards that provide customers access to a nationwide network of fueling sites.

ARKO owns 100 percent of GPM Investments LLC.