Mergers & acquisitions have changed the face of the modern retail fuel marketplace. It's a trend that appears here to stay, with an OPIS exclusive shining a spotlight on the hot retail gas station M&A market, particularly the possible sale of Thorntons.
To set the stage a little...
As this Retail Pricing 101 post explains, two decades ago, most U.S. gasoline stations were branded to a major flag – like Exxon, Mobil, Chevron, Shell or Texaco. Chances are, back then you probably even had a brand-specific gas card.
But, in just the past 15 years, the retail marketplace transformed. That gas card is probably long gone from your wallet and new market players have emerged.
More recently, in 2017, we noted that c-store giants had yet to quench their thirst for retail fuel station acquisitions and had the funds to outbid smaller competitors. Such feeding frenzy could continue to keep transaction prices high for choice deals.
Cut to Current Retail M&A Events
Downstream retailers may soon find out how hot the market is for acquiring a "New Era" station chain.
OPIS has learned that Thorntons has retained investment bank Lazard to explore the sale of the high-volume and well-regarded 192-store convenience chain.
Louisville, Ky.-based Thorntons has been a mainstay of many Midwestern markets, but is best known as a dominant retailer in its home state. It also owns and operates stores in Indiana, Illinois, Ohio and Tennessee and built stations in the Florida market about four years ago.
OPIS has confirmed with multiple sources that Lazard is showing a "book" on the company. Such a sales effort comes as a surprise to those who note that the still-expanding company was looking for 100 new employees for full- and part-time positions as recently as late March.
A spokesperson for the chain said that it doesn't "comment on rumor or speculation," adding that "we see great growth ahead for Thorntons this year and in future years and we are very happy with our business."
The motive for selling is not known, although high multiples paid for retail chains and the threat of eventual demand destruction may have played into the decision.
The company has been run by the Thornton family since it was founded in 1971.
Thorntons, By the Numbers
Among companies ranked by OPIS in terms of market efficiency (percentage of market share divided by percentage of total outlets in a given area), Thorntons ranks 19th in the country, typically boasting two or more times the share of average competitors.
Stores typically have high-end inside offerings and are viewed as exceedingly well-managed by peers, with an ability to purchase at highly competitive unbranded prices.
According to OPIS' Retail Year in Review, Thorntons boasted market shares of 7.16% in Kentucky, 3.9% in Illinois, 2.34% in Indiana, 1.67% in Tennessee and 0.93% in Ohio; and 0.31% in Florida.
When its gasoline offering is judged against average unbranded costs, it has year-to-date average margins for regular of 12.8cts/gal, compared with 10.7cts/gal in 2017.
Observers believe that the company has long been able to procure product at very competitive numbers, so those gross margins are probably understated. Thorntons street prices average 3.63cts/gal below competitors, so the company prices gasoline aggressively in all areas.
A Perfect Match?
Who might be in to buy Thorntons retail assets? M&A experts polled by OPIS believe that there will be strong interest from consolidators as well as from companies that might view the Thorntons properties as a means of expanding in some key geography.
Marathon might be the most logical suitor, but would likely run into Federal Trade Commission issues, where its Speedway or Marathon brands overlap with the private brand. Marathon also has its hands full in what will be a multiquarter digestion of Andeavor refining, marketing and logistics assets.
7-Eleven is mentioned as a bidder, as is MAPCO, which is owned by a Chilean oil company that has clearly expressed interest in expanding. Casey's could even be a buyer, given the challenge it has in gaining the scale necessary to avoid being a takeover candidate.
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