As convenience store operators seen offering investors a good inflation shelter, this Canadian gets acquisitive
Alimentation Couche-Tard (TSE:ATD) just finished a very busy week that points to what’s ahead for the convenience store operator’s growth in its U.S. and Canadian markets.
On Feb. 27, the Toronto-traded company announced it would acquire 45 fuel and convenience retail sites in Arkansas from Big Red Stores. All 45 sites are company-owned and company-operated. Sweetening the deal is that Big Red also owns the real estate under all but one of the locations.
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With the acquisition, Couche-Tard more than quadruples its store count in Arkansas, where the population has grown in 10 of the past 11 years. More importantly, the large-format stores provide the company with plenty of opportunities to expand the foodservice offerings at these locations.
"The stores themselves are larger, high-quality facilities that enable us to bring our full range of products, programs and offerings that make up the Circle K customer experience — and they’re in great locations,” C-Store Dive reported a Couche-Tard spokesperson's comments.
Over the past decade, the median transaction valued a convenience store’s enterprise value at nearly 10x EBITDA. In 2022, the median trended lower to 8.8x EBITDA. The Wall Street Journal in September reported that "investors searching for an inflation shelter are likely to find a good one in convenience stores."
While no terms were revealed, the transaction is expected to be completed in the first half of 2023.
The second M&A transaction last week was the March 1 announcement by Couche-Tard that it completed the sale of 52 sites in Atlantic Canada to Harnois Énergies. The sale was the final step in gaining regulatory approval to buy the Wilsons network of fuel stops, convenience stores, wholesale dealer fuel locations, and a marine fuel terminal in Halifax.
The company originally announced the transaction in July 2021. It was expected to close in the first half of 2022. However, regulatory issues with Canada's Competition Bureau delayed the completed sale until this past week.
With the sale of the 52 sites, Couche-Tard gets the go-ahead to acquire 45 corporate-owned and operated convenience stores operating under the Esso, Wilsons Gas Stops, and Go! Stores brands in all four Atlantic Canada provinces.
The convenience store chain operates more than 14,300 locations in 24 countries worldwide including Canada, the U.S., many in Europe, and Hong Kong.
To be sure, management has been patient on the acquisition front. Both deals follow a noteable uptick in M&A transactions starting in June 2022, according to analysts at Raymond James.
Meanwhile, Couche-Tard is currently rolling out more than 10,000 touchless AI self-checkout kiosks at more than 7,000 Circle K locations worldwide over the next three years. Couche-Tard has been testing the kiosks at 500 locations since 2020.
The technology is made by Mashgin, a California-based company, whose systems are said to be the world’s fastest. The company’s website states that its systems are four times faster than traditional point-of-sale systems. Stadiums have found that Mashgin’s system increases revenue by anywhere from 25% to 400%.
Couche-Tard originally announced the relationship with Mashgin in June 2022.
“Our vision has always been to make people's lives better and give them back more time in their day,” said Abhinai Srivastava, CEO and co-founder of Mashgin in the June 2022 press release. “We've already saved people over 30 years of standing in line. We're honored to work with the fantastic team at Couche-Tard to bring that savings around the world.”
It’s very likely that the stores acquired in Atlantic Canada and Arkansas will get the kiosks at some point in the future.
The company is slated to release results for the third quarter (January-end) of fiscal 2023 after the market close on March 15. Analysts polled by S&P Capital IQ show a consensus estimate for normalized earnings per share of $0.75 on revenue of $20.38 billion.
The stock is among the top 15 holdings in the iShares MSCI Canada ETF, where holds a 2.14% weight in the exchange-traded fund's 91-stock portfolio.
Article by Will Ashworth, Fintel
