Friday, January 3, 2025
Convenience Store Industry M&A Review and Outlook: 2024
By Dennis L Ruben, Executive Managing Director, NRC Realty & Capital AdvisorsIntroduction
Although 2024 witnessed a number of unexpected merger and acquisition transactions, the biggest surprise was the deal that didn’t happen, and that is the proposed acquisition of Seven & i Holdings Co., Ltd. by Alimentation Couche-Tard Inc. That proposed acquisition, which is discussed in more detail below, blindsided industry participants, observers and analysts alike. Although many industry observers do not believe that the acquisition will occur as presently contemplated, for a variety of reasons, not the least of which are the perceived antitrust issues in the United States, no one is ruling out anything at this point. Currently, it is impossible to determine how this proposed transaction will play out, but it seems entirely possible that, whether a transaction occurs or not, Seven & i Holdings may not look the same at the end of 2025 as it does today.
As far as other major acquisitions are concerned, several large ones are worthy of note—Alimentation Couche-Tard’s agreement to acquire 270 GetGo Café+Markets stores from Giant Eagle Inc., 7-Eleven, Inc.’s agreement to acquire 204 Stripes stores and Laredo Taco restaurants from Sunoco LP, and Casey’s General Stores, Inc.’s acquisition of 198 stores and a dealer network from Fikes Wholesale, Inc., owner of CEFCO Convenience Stores. No one really saw any of these deals coming. On the small to medium size transaction front, there were several transactions that occurred in 2024, but not nearly as many as in 2023.
We think that many operators who have been contemplating a sale of their businesses have been “sitting on the sidelines” for a number of reasons, such as a desire to monitor future reductions in interest rates and anticipated changes in laws, regulations and enforcement as a result of the incoming administration in Washington and the fact that Republicans will control the White House and both chambers of Congress. Operators and industry observers alike are keenly interested in the anticipated deregulation of many industries, businesses and activities that directly or indirectly affect the convenience store industry, involving matters such as tax reform, credit card swipe fees, reduced environmental regulation, elimination of federal funding and tax credits for electric vehicles, and easing of antitrust enforcement. Finally, a recurring theme that we consistently hear from operators who are experiencing good financial results in their businesses is that they are reluctant to sell because they don’t know how they will be able to replace their current income and don’t want to incur the tax liability resulting from a sale based on current tax laws and regulations.
Political, Economic and Industry Challenges
Political. The political landscape during 2024 can best be described as monumental, to say the least. On the international front, the war in Ukraine continued without an end in sight, with large numbers of casualties on both sides and continued financial and other support from both the United States and other countries. On the Middle Eastern front, in October, Hamas perpetrated the worse terrorist attack on Israel in its history, resulting in hundreds of deaths and injuries. That event prompted Israel to launch a large-scale military response. As a result of this and other instability in the region, particularly in Iran and Syria, there do not appear to be any good solutions on the horizon. All of this will serve to create even more uncertainty in world oil markets. On the national front, the recent re-election of Donald Trump as President of the United States will certainly have widespread effects on a host of issues that are important to the convenience store industry, such as tax rates, the federal budget, antitrust enforcement, oil exploration, de-emphasis on electric vehicles and climate change, and involvement in foreign disputes.
Economic. Inflation was a major issue during 2024 and was probably the most important to voters in the recent presidential election. Although unemployment has stayed relatively low, interest rates have remained high, even with the modest interest rate cuts announced by the Fed thus far in 2024. The recent increases in inflation rates have caused analysts to predict that the Fed will delay or reduce the frequency and amount of further interest rate reductions in 2025, at least in the short term. Getting inflation under control and reducing consumer prices will be one of the primary focuses, as well as the largest challenges, for the incoming Trump administration. These objectives will prove especially challenging if Trump follows through with his promise to impose tariffs on a wide variety of products imported from certain countries.
Industry. In 2023, everyone--including the major oil companies, the car manufacturers and the politicians--was talking about the push for electric vehicles. However, in 2024, everyone wanted to change the subject. The push for EV has proven to be misguided and premature. There are not enough charging stations throughout the country, battery life is not good enough, and people are still enamored with their gasoline-powered vehicles. In fact, the highest consumer demand for vehicles recently has been for trucks and SUVs. With gas prices in many parts of the country at or below $3.00 per gallon, there appears to be little motivation for people to make the radical shift to EVs. Hertz learned first-hand about the market’s unwillingness to embrace EVs when it decided to purchase 100,000 Teslas and found that no one wanted to rent them. As a result, Hertz has liquidated most of its EV portfolio at substantial losses, and EVs have considerably lower resale values than most vehicles on the road today. However, there does appear to be growing interest in hybrid vehicles that do not require charging stations. As far as general industry issues are concerned, fuel volumes have been dipping in many parts of the country and fuel margins have been flat or lower in certain regions as well. There continues to be increasing emphasis on food service, due to both the uncertainties of fuel profitability and the recent consumer trends in shopping behavior. Rising food prices and general inflationary concerns have put increased pressure on consumers, which has had a direct adverse effect on the amount consumers are willing to spend at c-stores. In addition, operators continue to experience higher wage costs and employee turnover rates at their stores. Convenience stores are also facing increased competition from dollar stores, grocery store chains that have fuel offerings with loyalty programs, and retailers such as Costco and Walmart. Finally, the perennial problem of credit card swipe fees continues to plague the industry. Another major issue facing the industry is the popularity of weight loss drugs such as Ozempic and their effect on convenience store visits and shopping behavior. Now that a record number of people are taking weight loss drugs, convenience store operators are facing reduced purchases of snacks and items with high sugar content. They are also trying to determine how to modify their product offerings to attract people who have become much more calorie conscious.
Purchase Price Multiple Trends
Certain trends in purchase price multiples have remained relatively constant in 2024. Although the multiples on private deals are not typically reported, those involving public companies are. For the larger public company transactions, it was not surprising to see double-digit multiples, primarily due to the size of the transactions and the synergies that the purchaser thought it could realize by the combination. For those large deals involving private companies, the “rumor mill” also tended to peg the multiples at double digits, although there is certainly no way to verify that. For the small to medium size deals, we have seen multiples remain in the 8x to 10x range (based on store-level EBITDA) for high quality assets in good markets with favorable trends. The multiple trends in 2024 do not seem materially different than the ones we saw last year. That is interesting in light of the fact that there were a couple of interest rate reductions by the Fed in 2024. However, as more and more companies are being acquired, the universe of potential acquirers gets smaller and smaller, thereby limiting competition to some degree. On the positive side, the sale-leaseback financing sources and traditional senior lenders to the industry have been more bullish on the industry than they have been in the recent past and have been fairly active in the last year or so. This fact bodes well for potential acquirers who need financing to consummate acquisitions.
Alimentation Couche-Tard Inc./Seven & i Holdings Co., Ltd.
Perhaps the biggest story of 2024, and the resulting shockwave sent through the convenience store industry, was the bid submitted by Alimentation Couche-Tard Inc. in August to acquire all of the shares of Seven & i Holdings Co., Ltd., the parent company of 7-Eleven, Inc. in a deal valued at $38 billion. Seven & i quickly rejected that offer as being inadequate. In October, in an apparent effort to focus more on its convenience store business and to fend off a takeover from Couche-Tard, Seven & i announced that it would establish an intermediate holding company for its noncore supermarket food business, specialty store and other businesses (the SST Business Group), and would consider an initial public offering of the SST businesses, in order to unlock value for the company’s shareholders. Prior to that announcement, Couche-Tard raised its offer to acquire Seven & i from $14.86 per share (or approximately $38 billion) to $18.19 per share (or approximately $47.2 billion). In November, Seven & i announced that it was considering a management buyout to take itself private with funding from banks, Itochu Corp. and the founding Ito family in a transaction that could be worth as much as $58 billion, and that it had received a nonbinding proposal to acquire the company from Junro Ito, Vice President and Representative Director of the company, and Ito-Kogyo Co., Ltd., a private company affiliated with Ito. It has been reported that, as part of the management group buyout proposal, the North American convenience store business would be spun off in an initial public offering. A special committee of Seven & i’s board, made up of independent, outside directors, is currently reviewing the management proposal with its financial and legal advisors. As of the date of this article, no further announcements have been made with respect to the status of any discussions with or decisions by Seven & i.
Significant M&A Transactions
Alimentation Couche-Tard Inc. Alimentation Couche-Tard Inc. reached a definitive agreement to acquire GetGo Café+Markets from Pittsburgh-based Giant Eagle Inc. GetGo, the convenience store subsidiary of the supermarket retailer, operates 270 convenience stores across Pennsylvania, Ohio, West Virginia, Maryland and Indiana. The acquisition is expected to close in 2025. In November, the company, through its subsidiary, Circle K Stores Inc. entered into a new franchise development agreement with The Briad Group, a hospitality company with a history of franchise development across the dining and lodging sectors. As part of that agreement, The Briad Group will open 40 franchised Circle K stores in upstate New York. Circle K currently operates and franchises approximately 30 locations throughout New York State. Couche-Tard also announced recently that it has agreed to acquire the retail assets of Hutchinson Oil Company, which owns and operates 20 Hutch’s convenience stores across Oklahoma and Kansas. The Hutch transaction is expected to close at the end of January.
7-Eleven, Inc. 7-Eleven, Inc. entered into an agreement to acquire 204 stores from Sunoco LP, which includes Stripes convenience stores and Laredo Taco Company restaurants, for approximately $1 billion. The stores are located across West Texas, New Mexico and Oklahoma. Sunoco LP acquired Susser Holdings and its Stripes convenience stores in 2015, and in 2018, 7-Eleven completed the acquisition of more than 1,000 Sunoco convenience stores. As part of the latest sale, Sunoco will also amend its existing pay-or-take fuel supply agreement with 7-Eleven to incorporate additional fuel gross profit. In October, 7-Eleven announced that it is planning to open over 500 large-format, food-focused convenience stores in North America by the end of 2027. These new locations will showcase a new prototype that the company internally calls its “New Standard” stores, which consist of more contemporary facilities that offer a larger product assortment and expanded food and beverage offerings compared to the rest of its stores.
Casey’s General Stores, Inc. In July, Casey’s General Stores, Inc. entered into a definitive agreement to acquire Fikes Wholesale, Inc., owner of CEFCO Convenience Stores, in an all-cash transaction for $1.145 billion. The purchase price included tax benefits valued at approximately $165 million for a net after-tax purchase price of $980 million. Casey’s acquisition of Fikes includes 198 retail stores and a dealer network. The acquisition will bring 148 additional stores to Texas, which is a highly strategic market for Casey’s, as well as 50 stores in Alabama, Florida and Mississippi. In addition to the retail stores and the dealer network, the transaction includes a fuel terminal and a commissary to support the Texas stores. The transaction represents Casey’s second acquisition of Texas convenience stores, the first being the 22-store acquisition of Lone Star Food Stores from W. Douglass Distributing, Ltd. in 2023. The company indicated that the net investment of $980 million represents an approximate multiple of 11 times CEFCO’s pro forma adjusted 2023 EBITDA. The CEFCO transaction closed in November.
FEMSA. In August, FEMSA, through one of its subsidiaries, entered into a definitive agreement to acquire all of the equity interests in the subsidiaries of Delek US Holdings, Inc. that operate Delek US Retail, for cash consideration of $385 million. FEMSA is one of the largest conglomerates in Mexico with operations in more than 17 countries. Through FEMSA’s Proximity & Health Division, it operates OXXO, which is the largest small-format proximity store operator in the Americas with more than 22,800 stores in five countries, including Mexico, Columbia, Chile, Peru and Brazil. Delek US Retail comprises 249 corporate stores operating under the DK brand primarily in the southwestern United States, including convenience stores in Texas and New Mexico. This transaction represents FEMSA’s first entry into the United States convenience store industry. The transaction was scheduled to close by the end of 2024.
H&S. In March, H&S Energy announced that it had acquired the fuel and convenience retail businesses from Andretti Petroleum Group, which consisted of convenience retail, fuels distribution, cardlock, fleet card, commercial fueling, car wash, lubricants and transportation businesses on the West Coast and in the Pacific Northwest. The transaction added approximately 170 retail sites and gas stations in Oregon, Washington state and California, essentially doubling H&S Energy’s retail footprint on the West Coast. Prior to the transaction, H&S had more than 160 convenience stores operating under the ExtraMile and Power Market banners, and sells fuel under Chevron, Texaco, Shell and 76 brands.
Nouria Energy Corp. In October, New England retailer Nouria Energy Corp. entered into a definitive agreement to acquire convenience retailer Enmarket from its parent company, Colonial Group, based in Savannah, Georgia. The transaction, which represents Nouria’s first expansion into the South, includes Enmarket’s entire network of 132 convenience stores and 26 car washes across Georgia, South Carolina and North Carolina. Nouria, which currently operates about 170 convenience stores and 61 car washes across New England, will nearly double its footprint and reach three new states when the deal closes.
Other Notable M&A Transactions
BreakTime Corner Market. BreakTime Corner Market has agreed to acquire 39 MinitMart convenience stores across central and northern Illinois from EG America. The deal marks a major expansion of BreakTime into Illinois, whose only location is in Tilton, about 145 miles south of Chicago. BreakTime now owns and operates more than 300 gas and convenience stores and travel plazas under the BrakeTime and Corner Market brands across several states. The transaction was expected to close in 2024.
CrossAmerica Partners. CrossAmerica Partners and its subsidiary, Lehigh Gas Wholesale Services, Inc., have agreed to acquire 59 convenience stores from Applegreen Midwest LLC and Applegreen Florida for $16.9 million. The transaction will occur by virtue of the termination of lease agreements between the two companies.
Fischer’s Neighborhood Market. Fischer’s Neighborhood Market, which operates over 30 convenience stores in south-central Texas, has agreed to acquire regional competitor Mini Mart. The transaction consists of 17 convenience stores in the Hill Country region of Texas.
The Kent Cos. The Kent Cos. acquired DC Oil Co. of Birmingham, Alabama. The transaction, which includes 13 convenience stores branded either Chevron or Texaco, a fuel transportation fleet and a portfolio of dealer accounts, bolsters Kent’s position in the Southeast and marks its entry into its eighth state. With this transaction, The Kent Co.’s total store count stands at 104 locations. The company also supplies fuel to more than 150 additional dealer sites across six states.
Legacy Markets LLC. Legacy Markets LLC, a new convenience store venture based in Hendersonville, North Carolina, acquired a ten store chain from Triangle Stop Food Stores. The Triangle stores are located in smaller cities throughout North Carolina. The company stated that it plans on making several acquisitions in the near term and expects to have about 80 convenience stores across the Southeast in its network by the end of 2024.
SpartanNash. Grocer and food supplier SpartanNash of Grand Rapids, Michigan, recently acquired a high-performing three-unit chain consisting of a convenience store, a travel plaza and a truck stop located in central Michigan from Markham Enterprises, Inc. SpartanNash currently operates 147 grocery stores, primarily under the banners of Family Fare, Martin’s Super Markets and D&W Fresh Market, in addition to pharmacies and fuel centers. It also owns 36 convenience stores under a variety of retail brands. NRC Realty & Capital Advisors, LLC served as financial advisor to Markham Enterprises, Inc. and its affiliates in the transaction.
Stewart’s Shops Corp. Stewart’s Shops Corp. acquired the retail convenience store, wholesale dealer and residential heating oil businesses of Jolley Associates, LLC and S.B.
Collins, Inc. Jolly Associates operates 45 convenience stores in Vermont, New Hampshire and New York, and S.B. Collins delivers gasoline and diesel to dealers in those three states. There are 357 Stewart’s Shops in upstate New York and southern Vermont.
Sunoco LP. Sunoco LP completed the purchase of 38 dealer-owned and operated locations, and one company-operated travel plaza from PetroTex Fuels, Inc. of Beaumont, Texas.
Divestitures
In February, Parkland Corporation announced that it was selling 157 convenience stores with fueling stations in Canada as part of its portfolio optimization process. The stores are located in a variety of areas, from large cities to smaller towns. Most of the stores in the sale are located in Quebec and Ontario, although there are some in Alberta, British Columbia, Manitoba and Saskatchewan. Some of the sites operate under the On the Run banner and offer fuel brands such as Chevron, Ultramar, Pioneer and FasGas. NRC Realty & Capital Advisors, LLC, together with Colliers Canada, were engaged by Parkland to coordinate the sale. In September, Parkland also announced its intention to divest its Florida business, which consists of 100 convenience store retail locations, nine cardlock sites and four bulk storage plants and warehouses. The company stated that it intended to find a buyer and complete the sale within 12 to 18 months. In March, Shell announced that it intended to divest 500 company-owned retail sites in 2024 and another 500 sites in 2025 as part of its global strategy. The divestitures will be part of Shell’s new multi-billion-dollar program to upgrade its retail network with low-carbon energy solutions, including a heavy focus on electric vehicle charging stations. During an investor meeting, Shell officials announced that it will not only keep its convenience stores in the U.S., but plans to grow its presence in America as well. In September, 7-Eleven, Inc. announced that it was divesting 76 convenience stores in the United States and Canada, 33 of which sell gas. The stores are scattered throughout the United States and Canada, with stores in 21 stores and three Canadian provinces. 7-Eleven retained NRC Realty & Capital Advisors, LLC to coordinate and manage the sale.
Conclusion
Convenience store merger and acquisition activity was extremely strong as it relates to larger transactions in 2024, with many deals involving more than 150 retail stores. That was certainly a major departure from the previous year. However, there were significantly fewer small to medium sized transactions in 2024 as compared to 2023. The year witnessed downward pressure on fuel volume and, in many parts of the country, fuel margin was either down or flat. Inflation and increased expenses, such as wages and insurance, continued to impact the bottom line for many operators. Finally, the uncertainty over world and national politics certainly affected operators’ confidence about the industry and their own operations. Nevertheless, we have recently had conversations with many operators who are seriously looking at strategic alternatives for their companies and portfolios. 2025 should prove to be a very interesting year.