Mid-Sized Players to Drive More M&A Action

NATIONAL REPORT — 2014 was one of the most active years on record for merger and acquisition activity in the convenience store industry, with some moves leaving even the most in-the-know experts surprised.

To recap some of the most significant deals:

• Marathon Petroleum Corp.'s Speedway LLC division purchased Hess Corp.'s retail holdings;
• Sunoco parent Energy Transfer Partners LP (ETP) bought Susser Holdings Corp., Aloha Petroleum Ltd. and 40 Tigermarket stores from Tiger Management;
• CST Brands Inc. bought the general partner interest of what is now called CrossAmerica Partners LP, with the two companies teaming up to acquire Nice N Easy Grocery Shoppes Inc.;
• Global Partners LP purchased Xtra Mart parent Warren Equities Inc.; and
• Alimentation Couche-Tard Inc. announced it would acquire Kangaroo Express parent The Pantry Inc., with the latter's shareholders voting March 10 to determine whether or not to approve the deal.

It will be difficult to top what took place last year, but 2015 is expected to take its best shot. Although there are very few publicly traded convenience store-related entities left to be acquired, several acquisitions of mid-sized privately held companies could occur this year. Master limited partnerships (MLPs), flush with cash due to different tax requirements compared to other companies, will continue to be big acquirers, Dennis Ruben, managing director of NRC Realty & Capital Advisors LLC, told CSNews Online. 

"[EBITDA] multiples are almost irrelevant for these companies," he said. "If it moves the needle in terms of being accretive to cash flow, they seem to worry about if they overpaid later on."

In fact, since EBITDA multiples have become so high and with MLPs often outbidding many pure-play retailers for assets, many mid-sized c-store operators have called NRC Realty already in 2015 looking to sell their businesses, Ruben confirmed.

"I think in the next 12 to 24 months, you could see 30 to 40 percent of the c-store assets in the hands of half a dozen players," he said.

As for the likely acquirers, Ruben cited ETP/Sunoco, CST Brands/CrossAmerica, Global Partners and Casey's General Stores Inc.

Private-equity firms could also get into the mix, according to both Ruben and John Sartory, managing director of Petroleum Capital & Real Estate LLC. Fortress Investment Group LLC, which acquired United Oil — the largest independent convenience store and gas station operator in the southern California market — in July was mentioned as one such firm.

For more on the "Consolidation Nation" trend happening in the c-store industry, check out the March issue of Convenience Store News.