Downstream energy a bright spot during a muted year for oil & gas M&A

By Shawn Bhagat
Managing Director

While mergers and acquisitions in the energy industry have been muted this year, due to persistent low oil prices and other complications, the downstream oil & gas, wholesale marketing, and transportation & logistics sectors have seen some activity.

Convenience store acquisitions and their accompanying fuel distribution channels, especially, appear to be a hot commodity, with the most recent big announcement coming on Aug. 22: Canada’s Alimentation Couche-Tard Inc., parent of the Circle K brand, announced the acquisition of San Antonio-based CST Brands, which operates more than 2,000 convenience stores. Under the deal, Couche-Tard will acquire CST in an all-cash transaction. The deal, with a total enterprise value of $4.4 billion, will bring more than 2,000 locations into the Couche-Tard family.

Here’s a quick look at some of the most recent deals in downstream energy:

  • In August, Dallas-based Sunoco, which operates gas stations under several brands including Tigermarket, agreed to buy the convenience store, wholesale motor fuel distribution and commercial fuel distribution businesses serving East Texas and Louisiana from Denny Oil Co. The deal includes six company stores and 127 supply contracts with dealer-owned and dealer-operated sites and over 500 commercial customers. Sunoco also recently completed the acquisition of the Rattlers convenience store assets and wholesale fuel business from Kolkhorst Petroleum and the acquisition of convenience stores serving upstate New York from Valentine Stores.
  • In July, Wallis Cos. signed an agreement to acquire the assets of U-Gas Holdings Inc., including 19 U-Gas and 14 Dirt Cheap convenience stores along with the Gigi’s Commissary, according to CSP Daily.
  • In June, El Paso-based Western Refining completed its acquisition of Arizona-based Northern Tier. Northern Tier was an independent downstream energy company with refining, retail and logistics operations, including 165 convenience stores and 102 franchised convenience stores, primarily in Minnesota and Wisconsin, under the SuperAmerica brand, according to CSP Daily.
  • In March, Couche-Tard said it would acquire 279 Imperial Oil gas stations in Canada, a $2.1 billion deal. The company also said during its recent earnings release that it’s on the hunt for other opportunities.

Steady cash flow attracts buyers

The downstream petroleum distribution market has been attractive to buyers due to the steady earnings and cash flow that come from retail operations, along with diversification and growth opportunities.

Low fuel prices have helped improve the balance sheets in the transportation & logistics space. M&A transactions offer a viable opportunity for these businesses to strike while they have the financial wherewithal to increase market share.

Even players outside the energy sector are seeking entry into downstream businesses. In July, The Guess Corp. announced that it wanted to acquire at least 1,000 gas stations within 12 months. The North Carolina conglomerate is a luxury goods holding company focused on diamonds.

To be sure, M&A activity in the oil and gas sector has been unremarkable this year with very few deals to report in the first half of 2016.

Although downstream deals are below 2014 and 2015 levels, we anticipate more activity in the sector.

Capital Alliance Corporation is a Dallas-based investment banking firm with an extensive international reach and a 40-year history of providing trustworthy advice to private company shareholders who want to sell their businesses. Our team has deep operational and M&A experience across many sectors, including energy.