A Canadian company is trying to corner the corner-store market in the US.
Alimentation Couche-Tard, which is based outside of Montreal and better known as the owner of Circle K stores, is poised to expand its footprint to 48 US states with the acquisition of closely held Holiday Stationstores Inc., a deal announced Monday. The transaction, valued by analysts at $1.5 billion to $2 billion, extends a buying spree that crossed the border 16 years ago and has now gone global.
The deal by Couche-Tard, which reported quarterly profit Wednesday that beat analysts’ estimates, furthers the reach of a company that’s little known to Americans even though it has more than 7,000 locations in the US, according to industry publication CSP. The purchase of 522 stores, a food commissary and a fuel terminal gives Couche-Tard - French for “Night Owl” - access to the upper Midwest market, including a stronghold in the Minneapolis region, and boosts its expertise in selling prepared food.
It is Couche-Tard’s third major investment in the US since December 2014, after the acquisition of gas-station chain CST Brands Inc. for almost $4 billion, which closed just weeks ago.
Assuming the deal is approved by regulators, a Canadian company that started with one store in a Montreal suburb in 1980 would have US customers from Texas to Alaska, adding six states to its reach. While the acquisition would move Couche-Tard closer to US market leader 7-Eleven, the industry is highly fragmented, with chains accounting for 37% of total stores, according to a Bloomberg Intelligence report from March.
The acquisition “reflects that the industry consolidation theme continues in the US and Canadian convenience and fuel market,” Keith Howlett, an analyst at Desjardins Capital Markets, wrote in a note to investors.
Fourth-Quarter Results
Profit grew to 52 cents a share, excluding some items, in the period ended April 30, Couche-Tard said Wednesday in a statement. Analysts projected 46 cents on average. Sales in Europe and efforts to control costs helped make up for lower gasoline and products margins in the US.
With the acquisition, Canadian companies have made 18 deals valued at $1 billion or more to buy US targets so far this year, compared with 21 for all of last year, according to data compiled by Bloomberg.
Laval, Quebec-based Couche-Tard said the agreement bars it from disclosing financial terms. It forecast that Holiday would add $180 million to $190 million a year in earnings before interest, income taxes and depreciation and amortization, which last fiscal year amounted to about $2.4 billion.
Alain Bouchard, the co-founder and now executive chairman, has gradually expanded the company, first in its home market, then to the rest of Canada, before entering the US in 2001 and Europe in 2012. The company has a no-frills reputation, with top management known for visiting scores of stores before making acquisitions to spot the weaknesses.
‘Well-Run’
In Holiday, Couche-Tard said it identified a “very well-run company” with similar growth prospects and a strong local brand. Strong points include a successful car-wash subscription program, a food commissary that makes thousands of sandwiches a day, and data analytics used for pricing, CEO Brian Hannash told analysts after the announcement.
Mark Petrie, an analyst with CIBC World Markets, called it an “excellent fit” thanks to a limited geographic overlap between the two companies and Holiday’s market share of about 30% in its territory.
Couche-Tard shares gained as much as 3.1% to C$62 Wednesday. They had declined 1.2% this year through Tuesday’s close, compared with a 1.9% gain for a sub-index of Canadian consumer-staple sellers.
That underperformance has been unusual for Couche-Tard, “a favorite of investors for the last 15 years,” GMP Securities analyst Martin Landry wrote. He called the price “an appealing entry point into one of the best-managed companies in Canada.”
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