No End in Sight for C-store M&A Surge

NATIONAL REPORT — Merger & acquisition (M&A) activity has been rapid in 2014 and 2015, with no signs of slowing down. Evidence in these fast-paced changes can be found when doing year-over-year comparisons of the Convenience Store News Top 100 rankings.

Many names fell off the list this year after being acquired, while others made impressive moves up the rankings, and another group of companies entered the list as new kids on the block. With the exception of 7-Eleven Inc. ranking as the No. 1 U.S. c-store player in terms of locations for another consecutive year, most other companies saw position changes. In fact, none of the other top 10 c-store chains on this year's list occupied the same position last year.

If economic cycles tell us anything, it's that the feverish M&A activity in the convenience and fuel retailing industry has to end someday. However, experts don’t think that day is near.

"There's no reason right now to believe the dynamics moving everyone toward further consolidation are going to subside," John Sartory, managing director of Petroleum Capital and Real Estate LLC, told CSNews Online. M&A in different shapes and sizes should continue. Whether it's a one- or two-store acquisition that garners little fanfare, or something as big as Alimentation Couche-Tard Inc.’s recent purchase of The Pantry Inc., he said nothing is out of play.

"I think you will see a wide spectrum of transactions that are bigger, smaller and in-between," revealed Sartory. "I think there will be a lot of smaller sellers who have no more than 10 or 15 sites, and I think you will have larger mega-deals. I think these deals will occur because the appetite is there and the credit is available."

Tim Powell, founder and principal of Think Research & Consulting, also sees no sign of an M&A slowdown. "There is still a lot of room for activity," he said. "There are far more single stores and independents to be had. Location is the name of the game and regional chains are looking to buy share."

Also in agreement is Ben Brownlow, equity research analyst for Raymond James Associates Inc. "There is still a ton of opportunity," he stated. "There are 150,000 fuel/convenience stores in the country and two-thirds are mom-and-pop operators, so it's still a very fragmented industry with a ton of consolidation left."

As for the retailers likely to be acquirers, Dennis Ruben, executive managing director of NRC Realty & Capital Advisors LLC, named CST Brands Inc. and Sunoco LP.

"Also, there are other master limited partnerships (MLPs) that will continue to be buyers," Ruben said. "Interestingly, there are two MLPs coming to market [as initial public offerings] in GPM [Petroleum] and Empire [Petroleum Partners]. These companies have been growing at aggressive rates."

In fact, even the acquirers could become the acquired. In a recent Barron's article, Mario Gabelli, chairman and CEO of Gamco Investors, said CST Brands — which along with its partner CrossAmerica Partners LP has purchased multiple c-store assets in recent months — could itself be taken off the market by a competitor.

"You have low interest rates, multiples that have been high, and strong fuel margins allowing customers to have more disposal income," Ruben said. "The trends we've seen for c-store retailers for the past six months have been very positive. Before long, you will have one-third of the convenience stores in this country in the hands of a half-dozen people."

For more on the ongoing Merger Mania in the convenience and petroleum retailing industry — including a look at the factors that could slow things down — check out the July issue of Convenience Store News.