At first, the news of Alimentation Couche-Tard wanting to acquire Seven & i Holdings Co. Ltd., the parent company of convenience-store chain 7-Eleven Inc., came as a surprise to Jesse Betzner, senior director at M&A advisory service company Capstone Partners, based in Boston. But then, once he thought about it in more detail, it made more and more sense.
- 7-Eleven is No. 1 on CSP’s 2024 Top 202 ranking of U.S. c-store chains by store count. Alimentation Couche-Tard is No. 2.
Couche-Tard, parent of the Circle K c-store chain, is a company that has a history of making bold moves. They were built upon acquisitions. And they have an “audacious goal of doubling their business,” Betzner told CSP Daily News.
“They’re currently a $5-plus billion EBITDA business and they want to get to $10 billion EBITDA. And my first impression was, ‘Wow they’re going to find a shortcut to get there, potentially,’” Betzner said. “But of course, there are major obstacles and financial barriers in the way to getting it done. It’s definitely no slam dunk of a transaction.”
Seven & i Holdings also complements Alimentation Couche-Tard because they are both global businesses.
Irving, Texas-based 7-Eleven operates, franchises or licenses more than 83,000 convenience stores in 19 countries and regions, including more than 13,000 7-Eleven convenience stores in the United States. Laval, Quebec-based Couche-Tard operates in 29 countries and territories, with more than 16,700 convenience stores. Its network includes more than 7,100 c-stores in the United States, primarily under the Circle K banner.
“7-Eleven is a gem in Japan,” Betzner said. “Their stores are incredibly clean and popular and highly trafficked, and so that is going to be attractive to a number of companies. And with Japan being a market that has been opening up to foreign investors for a number of years… the environment has become more friendly for foreign investors, corporate governance has improved over there and you’re seeing a lot of foreign capital being attracted to Japan.”
There are some obstacles for making this deal happen though, Betzner said. Here are some questions and points he raised:
- The deal must go through Japanese regulators. “How does that country feel about their national champion retailer 7-Eleven actually being acquired by a foreign business?” Betzner said.
- In the United States, the question is, in what markets do Circle K and 7-Eleven have overlaps, and how would that be dealt with in the transaction? Betzner expects Couche-Tard would need to divest stores to avoid anti-competitive challenges.
- How is Couche-Tard going to finance it?
- How will new leadership affect a potential deal? There is an election happening in the United States as well as Japan. Couche-Tard is also going through a leadership position, with Alex Miller starting as president and CEO Sept. 6, succeeding Brian Hannasch, who is retiring form the position and the board. “Anytime there's leadership transition when you have a massive transaction like this that it's something to be aware of,” Betzner said.
“So there’s a number of complications to getting a good deal done, and this is just the beginning,” Betzner said.
M&A Landscape Looking Ahead
It’s an active market, and while there could be more deals in 2024, there’s likely not going to be any as large as what’s already occurred this year, Betzner said. Just in the last month, Casey’s acquired 198 CEFCO convenience stores; FEMSA has entered into definitive agreements with Delek US Holdings Inc. to acquire Dele’s retail operations, including 249 c-stores; and Couche-Tard reached a definitive agreement to acquire about 270 GetGo Café + Markets c-stores from supermarket retailer Giant Eagle Inc.
“It’s having a ripple effect in the marketplace,” Betzner said. “It’s showing folks that the market is strong and now is still a good time as ever to be considering a sale if you’re a private business owner, if you’re an independent.”
Generally, there are fewer and fewer well-run, independent c-stores, because a lot of them are being taken off the market, he said. This creates scarcity, with a lot of buyers being interested in acquiring these stores, so it remains a robust time to do a transaction, Betzner said.
In his opinion, there is no sign of things slowing down yet.
“I'm not sure we see as many large deals like that,” Betzner said of Couche-Tard trying to acquire 7-Eleven. “There's definitely been a trend toward smaller deals coming to market as well... What we see is actually average store count has gone up in these deals because of the larger transactions, but the median deal count has stayed relatively consistent. That indicates to us that most of the deals happening are small transactions with fewer stores in the portfolio, but every now and then you get this big transaction that comes out the market and makes kind of a splash in the marketplace.”
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