Why slow down?
Alimentation Couche-Tard's executives must ask themselves that very question now that Hess Corp.'s U.S. network of retail convenience stores is up for grabs.
Despite closing its blockbuster $2.6-billion (U.S.) acquisition of the retail network of Norwegian state-owned Statoil just a year and a half ago, Couche-Tard's has the chance to strike again. Earlier this week energy giant Hess filed the regulatory paperwork to spin off its network, which comes with 1,258 stores in 15 states. The company is open to offers.
Everybody and their mother assumes the Canadian rival is watching closely. "We continue to believe that Alimentation Couche-Tard is interested in acquiring Hess's retail business, consistent with its consolidation of the convenience store industry in North America," noted BMO Nesbitt Burns analyst Peter Sklar, who added that investors were pricing in such a deal to Couche-Tard's stock as far back as June. Shares in the company are up more than 60 per cent in the past 12 months.
It's pretty easy to see why the retailer would vie for Hess's locations. Big blocks of stores don't hit the market very often. Instead, Couche-Tard usually has to pick up bits and pieces, such as its November acquisition of 36 stores in New Mexico, Florida and Georgia. Couche-Tard already owns The U.S. chain Circle K, as well as the Mac's and Becker's banners in Canada.
Couche-Tard can also afford a deal. Canaccord Genuity analyst Derek Dley told the Canadian Press that the retailer can support a $1.5-billion (U.S.) transaction – though no one knows for sure what price Hess would accept.
Then there is the need to keep busy. As TD Securities analyst Michael Van Aelst noted in a Report on Business Magazine piece on Couche-Tard's big European expansion, investors like when management consummates big deals. When they're busy their stock tends to trade at 17 to 18 times earnings. In slower periods – such as the nine-year drought between Couche-Tard's purchases of Circle K and Statoil, a period that included a failed hostile bid for Casey's General Stores in 2010 – the multiple averages roughly 13 times earnings.
However, a deal wouldn't be risk-free. Ask any acquirer, and they'll admit that buying is always the easy part. Integrating operations is a much more difficult task. Couche-Tard is still digesting its big European foray.
And it's incredibly easy for a company to get bogged down with too much expansion. (Just look to Starbucks for proof.) Can Couche-Tard handle the big European push, as well as another large North American deal?
For now the company won't say if it's interested in Hess's retail network. Chief financial officer Raymond Paré declined to comment to CP. However, he did note in an e-mail that Couche-Tard has "the capacity to do any transaction with our strong balance sheet."