Convenience Store Acquisitions Update – November 2024

Convenience Store Acquirers Face Heightened Competition for High-Quality Chains with Differentiated In-Store Offerings

The Convenience Store & Fuel Distribution sector continues to evolve as the macroeconomic climate and changing consumer preferences have forced many participants to reevaluate product offerings. Convenience store operators have increasingly prioritized in-store experiences to attract customers, bolster gross profit, and weather declining fuel sales. Both large chains and middle market businesses have capitalized on this trend, capturing additional market share via organic and inorganic initiatives. While convenience store acquisitions have slowed year-to-date (YTD), buyers in the space have continued to submit competitive bids for high-quality chains with differentiated in-store programs. Acquirers have also favored chains with more substantial store counts and larger store footprints to capture robust revenue and cost synergies. In addition, market fragmentation and lower borrowing costs as a result of the Federal Reserve’s interest rate cut in September have improved the outlook for sector merger and acquisition (M&A) activity.

The story of 2024 has been largely about Strategic buyers pursuing larger scale M&A compared to what we’ve seen in years past. The sector continues to out-perform the broader retail market, driven by strong in-store performance and robust fuel margins. As we move past election season and deeper into the Fed’s interest rate easing cycle, we are expecting a resurgent M&A market in 2025.

Jesse BetznerSenior Director, Capstone Partners

Declining Fuel Sales Drive Operators to Focus on In-Store and Prepared Food Offerings

As the main driver of top line performance, dragging fuel sales volumes and declining crude oil prices have continued to challenge convenience store revenue growth. First, fuel demand has remained soft, with the moving 12-month total vehicle miles traveled hitting 3,280 billion miles in July 2024, remaining 4,902 million below the reported peak of 3,285 billion miles in February 2020, according to the St. Louis Federal Reserve.¹ The slow recovery in fuel sales volumes can be partially attributable to the lingering impacts of work-from-home policies and its associated reduction in commuter travel, but also an increase in vehicle fuel efficiency and electric vehicle (EV) penetration. Of note, Alimentation Couche-Tard (TSX:ATD) and ARKO (Nasdaq:ARKO) saw their same-store gallons sold across geographies fall 1.4% and 6.6% year-over-year (YOY), respectively, according to their latest earnings releases.^{2, 3} Second, crude oil supply-demand imbalances have led to cheaper gas prices at the pump, negatively affecting revenue for sector participants. The price declines amid soft sales volumes have placed a greater importance on maintaining fuel margins and bolstering in-store sales, leaving large-scale players that have substantial global supply chains and free cash flow available for in-store-related capital expenditures in a strong position to take market share.

With challenges unfolding in the Fuel channel, differentiated in-store experiences, such as made-to-order food offerings, have emerged as a key strategic focus for convenience store operators. Of note, Foodservice sales have been a bright spot for the sector. The category recorded $58.7 billion in total sales during 2023, equating to 13.5% YOY growth, driven by value-seeking consumers who have continued to tighten their budgets amid the inflationary environment, according to a report from Convenience Store News.⁴ Furthermore, monthly Prepared Food sales grew 14.6% YOY to $44.3 billion as the number of shoppers who reported making purchases in the subcategory grew from 55% in 2022 to 69% 2023, according to a study from Convenience Store News.⁵ The growing perception of convenience stores as meal destinations has provided significant whitespace for operators, with larger players increasingly focusing on growth initiatives in this category. Adopting an organic approach, Tri Star Energy-owned Twice Daily rolled out a made-to-order food program to its network of convenience stores in Q3 2023, offering subs, sandwiches, breakfast, and snacks via in-store kiosks and mobile application ordering. On the inorganic front, Alimentation Couche-Tard, parent of convenience store chain Circle K, acquired food-first convenience store chain GetGo Café + Markets for $1.6 billion in August. Convenience store owners are expected to continue to use high-quality, fresh, made-to-order foodservice offerings to enhance store value propositions, bolster gross profit, and mitigate declining fuel sales.

Convenience Store Acquisitions Decline as Some Business Owners Delay Sale Processes

After a healthy start to the year for sector dealmaking, convenience store acquisitions have fallen 20.6% YOY with 27 transactions announced or completed in YTD 2024 compared to 34 in the prior year period. Slower dealmaking to-date has reflected sector participants’ caution amid the U.S. election cycle, which has caused a lack of visibility into the future operating environment starting in Q1 2025—delaying many sell-side processes. Despite soft fuel demand, systemic fuel price volatility, and uncertain fossil fuel and renewable energy regulations, strategic consolidators have remained hungry for roll-up opportunities (accounting for 25 transactions in YTD 2024), paying healthy valuations for high-quality businesses. M&A among private strategics has continued to propel the market, accounting for 66.7% of transactions to-date while pubic strategics have upheld an additional 25.9% of deal volume. In contrast, just two financial sponsor investments have been announced or closed in YTD. SITE Centers (NYSE:SITC), a real estate investment trust (REIT), acquired two convenience stores in a sale leaseback deal (April, $20.2 million); Gas Hub Investments acquired SQRL Service Stations, the convenience store arm of SQRL Holdings, comprising 180 operating convenience stores (April, undisclosed). However, Capstone expects an uptick in sponsor-led convenience store acquisitions as operators’ shift to in-store sales and made-to-order food experiences has created ample whitespace for private equity firms to capitalize on.

Targets with Large Store Counts Garner Increased Interest from Consolidators

Independently owned store operators with less than 50 locations have continued to comprise the majority (74.1%) of sector acquisition targets to-date. However, buyers have expressed an increased appetite for higher quality, larger chains with the ability to provide in-store sales accretion. Notably, the average store count of acquired businesses has increased 10.9% YOY to 57 stores YTD. This growth has been buoyed by six deals in YTD 2024, each comprising more than 150 locations, exemplifying robust buyer interest in scaled chains that can provide footprint expansion and operational synergies. “The other component and probably the thing that’s driving a lot of the M&A activity is just simply the challenging environment that we’re operating in...It’s just been harder and harder to run a really good and profitable convenience store business. And scale is mattering more than it ever has,” noted Darren Rebelez, CEO of Casey’s General Stores (Nasdaq:CASY), in the company’s fiscal Q1 2025 earnings call.⁶ Despite a challenging operating environment, scale and diversified offerings have prompted growth among public strategics in the sector, evidenced by the average last twelve-month EBITDA trading multiple in Capstone’s Convenience Store & Fuel Distribution Index rising YOY from 9.6x to 11.2x as of September 30^th.

The race to gain scale and consolidate the fragmented Convenience Store & Fuel Distribution market has been exemplified in the ongoing takeover conversations between Alimentation Couche-Tard and Seven & i (TSE:3382). Couche-Tard has proposed a friendly takeover bid for 7-Eleven parent company, Seven & i, at an enterprise value of $38.6 billion, equivalent to 8.3x EV/EBITDA (August). The offer was unanimously rejected by Seven & i’s Board of Directors on the basis that the bid grossly undervalues the company’s ability to unlock shareholder value, fails to adequately acknowledge the significant regulatory scrutiny that the transaction would face in the U.S., and deprives their shareholders of the company’s intrinsic value. Seven & i has expressed that they remain open to discussions should Couche-Tard put forth a proposal that recognizes Seven & i’s intrinsic value and addresses the regulatory concerns. While conversations have remained in preliminary stages, a deal would create a global convenience store powerhouse with more than 100,000 locations across Asia-Pacific, North America, Australia, and Europe, according to a press release.⁷

Public Companies Add Scale and In-Store Offerings Through M&A

Public companies in the sector have increasingly focused acquisition efforts on adding scale and in-store offerings to spur long-term growth. Management teams have ensured acquisition targets add meaningful scale into both existing and new geographic markets. Moreover, new products or services have been a cornerstone in major transactions, as larger players look to acquire operators with innovative in-store food programs that have proven consumer affinity. Select convenience store acquisitions are outlined below.

• Alimentation Couche-Tard to Acquire GetGo Café + Markets (August, $1.6 Billion) –Alimentation Couche-Tard announced its acquisition of GetGo Café + Markets for an enterprise value of $1.6 billion (August). GetGo operates 270 food-first convenience stores and fueling locations in Pennsylvania, Ohio, West Virginia, Maryland, and Indiana, according to a press release.⁸ GetGo offers kiosk-based ordering for its full, made-to-order food menu across 123 stores, while its ready-to-go food options are available across the remaining locations, according to the company’s fiscal Q1 2025 earnings call.⁹ Under the terms of the agreement, Couche-Tard and Giant Eagle, a supermarket retailer and former owner of GetGo, will partner to grow the myPerks joint loyalty program, which boasts significant penetration among GetGo and Giant Eagle customers. Couche-Tard has expressed an appetite for tuck-in opportunities for the GetGo business. “It’s a great fit to our existing network, and we’re looking forward to bringing GetGO team members into the family and learning more about their popular made-to-order food program and loyalty program. With their strong balance sheet and customer financial discipline, we’re optimistic about future deals at the right price and fit,” said Brian Hannasch, Founder and Executive Chairman of the Board of Alimentation Couche-Tard, in the company’s annual shareholders meeting.¹⁰
• FEMSA to Acquire 249 Convenience Stores from Delek US Holdings (August, $385 Million) – Fomento Economico Mexicano (BMV:FEMSA UBD), operator of OXXO convenience stores, announced its acquisition of the retail operations of downstream energy company, Delek US Holdings (NYSE:DK) for an enterprise value of $385 million (August). The majority (90%) of Delek’s 249 convenience stores reside in Texas, with the remaining 10% of sites located in New Mexico and Arkansas, according to a press release.¹¹ FEMSA noted entry into the U.S. Convenience Store market as the key rationale for the deal. The firm believes this fragmented market offers a high strategic fit and significant opportunities to refine its convenience value proposition. ”At FEMSA, we have a long-held ambition to enter the U.S. Convenience and Mobility industry, and this transaction represents the ideal way for us to take our first step in this compelling market,” said Jose Antonio Fernandez Garza-Laguera, CEO of FEMSA’s Proximity and Health Division, in the press release.
• Casey’s General Stores to Acquire Fikes Wholesale (July, $1.1 Billion, 11.0x EV/EBITDA) – Casey’s General Stores announced its acquisition of Fikes Wholesale for an enterprise value of $1.1 billion, equivalent to 11.0x EV/EBITDA (July). Fikes operates 198 Clarance Edison Fikes Company (CEFCO) convenience stores in Texas, Florida, Alabama, and Mississippi, according to a transaction presentation.¹² In addition, the company’s Wholesale business and bulk fuel terminal in Texas will be included in the transaction. The acquisition is expected to bolster Casey’s’ presence in Texas, where Fikes operates 148 of its 198 locations, and provides immediate scale in the state following Casey’s’ acquisition of 22 Lone Star convenience stores (November 2023, undisclosed), according to the presentation. The company expects the deal to generate ~$45 million in run-rate pre-tax annual synergies. Of note, Fikes’ revenue mix is split evenly between fuel and in-store sales, primarily due to having kitchens in more than 125 of its locations, underscoring key foodservice and scale trends in the sector.

Following the Federal Reserve cutting interest rates in September, encouraging investors’ hopes of a soft-landing, Capstone expects to see a significant uptick in the M&A market for Convenience Store & Fuel Distribution sector participants in 2025. However, the rest of 2024 remains an opportune time to begin preparations for a sale process as large strategics have demonstrated a continued appetite to acquire middle market businesses. Strategic buyers will likely continue to target and pay premiums through year-end for stores that pose limited integration risk, add scale in attractive geographies, and boast strong in-store foodservice offerings.

To discuss convenience store acquisition positioning in the current market, provide an update on your business, or learn about Capstone's wide range of advisory services and Convenience Store & Fuel Distribution sector knowledge, please contact us.

Andrew Woolston, Associate, was the lead Market Intelligence contributor to this article.

Endnotes

1. St. Luis Federal Reserve, “Moving 12-Month Total Vehicles Miles Traveled,” https://fred.stlouisfed.org/series/M12MTVUSM227NFWA, accessed September 25, 2024.

2. Alimentation Couche-Tard, “Alimentation Couche-Tard Announces Its Results for Its First Quarter of Fiscal Year 2025,” https://corpo.couche-tard.com/wp-content/uploads/2024/09/2025-Q1-Press-Release-En.pdf, accessed September 30, 2024.

3. ARKO, “ARKO Corp. Reports Second Quarter 2024 Results,” https://d1io3yog0oux5.cloudfront.net/_2aec34164697760d6508e29dd1895aff/arkocorp/news/2024-08-06_ARKO_Corp_Reports_Second_Quarter_2024_172.pdf, accessed September 30, 2024.

4. Convenience Store News, “Industry Report 2024 Deep Dive: Foodservice,” https://csnews.com/2024-deep-dive-foodservice?email-confirmed=1727201304379, accessed September 25, 2024.

5. Convenience Store News, “2024 Realities of the Aisle Study,” https://csnews.com/realities-of-the-aisle-study-2024?email-confirmed=1727297228665, accessed September 25, 2024.

6. Casey’s General Stores, “Q1 FY 2025 Casey’s General Stores Earnings Conference Call,” https://edge.media-server.com/mmc/p/u9u7v4h7/, accessed September 25, 2024.

7. Alimentation Couche-Tard, “Alimentation Couche-Tard Comments on Seven & I Holdings’ Response Not To Engage In Friendly Discussions Regarding a Value Creating Combination,” https://corpo.couche-tard.com/wp-content/uploads/2024/09/Press-Release-ACT-Comments-on-Seven-Response-9-8-2024.pdf?pdf, accessed September 25, 2024.

8. Alimentation Couche-Tard, “First Quarter Results 2025,” https://corpo.couche-tard.com/en/event/first-quarter-results-2025/, accessed September 30, 2024.

9. Alimentation Couche-Tard, “Alimentation Couche-Tard to Acquire GetGo Café + Market Stores from Giant Eagle,” https://corpo.couche-tard.com/wp-content/uploads/2024/08/Alimentation-Couche-Tard-to-acquire-GetGo-Cafe-Market-Stores-from-Giant-Eagle-081624vF.pdf, accessed September 25, 2024.

10. Alimentation Couche-Tard, “Annual Shareholders Meeting 2024,” https://corpo.couche-tard.com/en/event/annual-shareholders-meeting/, accessed September 25, 2024.

11. Fomento Economico Mexicano, “FEMSA to Enter the Convenience Store Industry in the United States,” https://www.femsa.com/en/press-room/press-release/femsa-to-enter-the-convenience-store-industry-in-the-united-states/, accessed September 25, 2024.

12. Casey’s General Stores, “Casey’s Acquisition of Fikes Wholesale Inc. and Its 198 CEFCO Convenience Stores,” https://s2.q4cdn.com/194594550/files/doc_presentations/2024/Jul/26/casey-s-acquisition-of-fikes-wholesale-inc-and-its-198-cefco-convenience-stores_final_.pdf, accessed September 25, 2024.