CST-CrossAmerica Partnership Has Up to 20 Deals in Pipeline

SAN ANTONIO — CST Brands Inc. and partner CrossAmerica Partners LP have a "long runway" of merger and acquisition opportunities, with "up to 20 deals in the pipeline," according to a Tuesday research note authored by Bonnie Herzog, managing director of beverage, tobacco and convenience store research for Wells Fargo Securities LLC.

In recent meetings with both CST Brands — including CEO Kim Lubel and Chief Financial Officer Clay Killinger — and CrossAmerica Partners — including outgoing CEO Joe Topper and incoming President Jeremy Bergeron — Wells Fargo Securities learned that the companies are targeting $150-$200 million in third-party acquisitions per year.

Ideally, CST is looking to acquire convenience store chains offering the following:

• $50-million to $100-million price range;
• Fifty to 70 stores with real property owned;
• Three thousand to 4,000 square feet in space;
• Potential for stronger fuel volumes; and
• Located in geographic areas boasting strong economies.

Regarding potential locations for the acquisitions, CST told Wells Fargo it seeks diversification in the upper Midwest and Canada.

CrossAmerica would be responsible for two-thirds to three-quarters of the price tag of any such transaction.

"CST remains committed to establishing its reputation as an acquirer of choice and leveraging the 'personal connection' and shared cultures of CST and small regional chains," wrote Herzog.

In her research note, she also revealed that CST plans to have approximately 40 of the 64 convenience stores it officially acquired on Feb. 18 from Erickson Oil Products Inc. become core CST locations. These stores are located in Minnesota, Michigan, Wisconsin and South Dakota.

INCREMENTALLY MORE POSITIVE

San Antonio-based CST purchased 100 percent of the membership interests of the general partner and 100 percent of the outstanding incentive distribution rights of Allentown, Pa.-based CrossAmerica, a master limited partnership (MLP), effective Oct 1.

After meeting with CST and CrossAmerica management, Wells Fargo came away "incrementally more positive" about the future of both companies. "The partnership has created a stronger, more efficient capital structure to accelerate acquisitive and organic growth, feeding the virtuous circle of growth via the MLP," Herzog observed.

Wells Fargo reiterated its positive "outperform" rating on CST's stock.

As of Dec. 31, CST Brands operated 1,021 U.S. stores, primarily under the Corner Store banner. The retailer also had 861 Canadian stores as of the same date operating under the Dépanneur Du Coin banner.