Wednesday, November 19, 2014
Speedway’s $2.8 billion bid for Hess banks on retailer’s elite loyalty program
Source: CSP MagazineBy Samantha Oller, Senior Editor/Special Projects Coordinator
Tony Kenney is expecting the question: How did Marathon Petroleum (MPC) and its retail subsidiary, Speedway, justify offering $2.874 billion for the Hess retail portfolio?
Granted, the convenience network is the fifth largest in the United States, with 1,256 stores in 16 states on the East Coast and Southeast, plus a transport fleet and pipeline shipper history.
With the Hess network tucked in, Speedway, the respected Midwestern powerhouse based in the sleepy town of Enon, Ohio, nearly doubled its store count to more than 2,700 across 22 states.
Yet analysts and industry observers are grappling with the multiple that Speedway paid. Was it too hefty a price to win a coveted prize?
Ken Shriber, managing director of Petroleum Equity Group, Chappaqua, N.Y., has described the price tag as “eye-popping, head-shaking, jaw-dropping.” That’s because it suggests a price of more than $2 million per site, or 12x to 14x EBITDA, at a time when East Coast prices are trending more in the range of $1 million to $1.5 million, or 6x to 8x EBITDA (earnings before interest, taxes, depreciation and amortization).
“Think about that—it’s double what analysts think Susser paid for Aloha Petroleum,” says Dennis Ruben, executive managing director of NRC Realty & Capital Advisors LLC, Scottsdale, Ariz., referring to Susser Petroleum Partners’ September acquisition of Hawaii’s largest independent marketer.
What remains unknown is the extent to which Aloha owned or leased its sites. “On the other hand,” says Ruben, “people are paying a lot of money.”
Alain Bouchard, recently retired president and CEO of Alimentation Couche-Tard, Laval, Quebec, which vied for the Hess assets, called the winning price “too high.”
“Marathon paid several million dollars more than the amount [Couche-Tard] was willing to offer,” he said at a financial meeting in May shortly after the deal was announced.
So why did MPC/Speedway spend so much?
In an exclusive in-person interview, Speedway president Kenney sat down with CSP one day after the Hess acquisition closed for an adjusted purchase price of $2.82 billion.
Yes, the price was high, but not for MPC/Speedway, not for the promises the Hess properties hold, not for the capabilities Speedway will bring to the equation. Specifically, Kenney points to the potential: additional merchandise margin. Speedway generates an incremental $17,300 per store per month compared to Hess. That is $250 million in annual incremental merchandise margin