Couche-Tard, the owner of Circle K, is seeking a deal worth up to $15 billion

The top executive of Canada’s Alimentation Couche-Tard Inc. hopes that the disruption of the global economy will open the door for a sizable deal. The company has the financial capacity to complete a $10 billion to $15 billion acquisition.

“I’m hoping the uncertainty that’s out there today does create an environment where we can be acquisitive,” Chief Executive Officer Brian Hannasch said. “The balance sheet’s in good shape, it’s ready.”

A potential bidder for a portion of Suncor Energy Inc.’s Petro-Canada chain of gas stations has been identified as Couche-Tard, whose attempt to acquire retail giant Carrefour SA was thwarted by the French government in 2021.

Analysts predict that if Suncor decides to sell it, it will cost more than C$10 billion ($7.6 billion), but because to antitrust concerns, Couche-Tard would not be able to acquire all 1,500 or more Petro Canada facilities.

Hannasch still sees room for growth in Couche-Tard’s home country.

“There are certainly parts of Canada where we would love to grow, particularly the west where we’ve got a much smaller market share than what we would have in Ontario, the Atlantic provinces and Quebec,” he said in an interview. The company has just acquired more stations in Eastern Canada after agreeing to sell 47 sites to satisfy antitrust regulators.

On Wednesday, firm executives from Laval, Quebec, told investors that a combination of rising inflation, slower growth, and an uncertain economic outlook could lead to significant transaction opportunities in the US and Europe.

According to National Bank Financial analyst Vishal Shreedhar, if Couche-Tard were to complete a sizable acquisition, “we think the shares would respond favorably given a strong track record of integrating deals.” Just 1.3 times the company’s earnings before interest, taxes, depreciation, and amortization are owed in net debt.

What Bloomberg Intelligence Says 

Alimentation Couche-Tard’s strategy of reaching as much as $6.3 billion in adjusted Ebitda by fiscal 2023 by balancing M&A and organic sales growth could stimulate a deal soon as $16 billion of balance-sheet capacity offers ample ability for a sizable purchase. The company is focusing on pockets of growth to improve merchandise mix and generate same-store sales gains of 2-4%. Organically, Couche-Tard could reach 80-85% of its profit target and coupled with an advantageous selection of assets, that may push it over the finish line. 

-- Bloomberg Intelligence analyst Diana Rosero-Pena

Strongest Quarter

Soaring gasoline costs helped Couche-Tard generate a record quarterly profit for the period ended July 17.

Fuel revenue in the fiscal first quarter jumped 52% over last year and margins expanded. The company earned $872 million, or 85 cents a share, well above analysts’ expectations for 73 cents.

More than three-quarters of the company’s sales came from transportation fuel in the quarter. Total gross profit in that segment rose 25%, while it was flat in convenience stores. Consumers are spending less on food items and looking for value, leading to growth in private-label brands in stores, Hannasch said. The firm owns the Circle K brand.

Couche-Tard shares have risen 7% this year, outperforming the 9% drop of the S&P/TSX Composite Index.

Credit: Bloomberg