-By Josh Abraham, London School of Economics
DEAL OVERVIEW
Acquirer: Seven & i Holdings (holding company of 7-Eleven)
Target: Speedway (subsidiary of Marathon Petroleum)
Value: US$21 billion
Announced date: August 3rd, 2020
Closed date: May 14th , 2021
Financial Advisors: Nomura Securities International Inc. and Credit Suisse for 7-Eleven
Legal Counsel: Akin Gump Strauss Hauer & Feld LLP, and Nishimura & Asahi for 7-Eleven
Company details
Acquiring company: 7-Eleven
7-Eleven is a subsidiary of Seven & i Holdings, and is the market leader in the convenience-retailing industry. It sells quick-grabs such as sandwiches, salads, and cut fruit, and has now expanded into protein boxes, pizza, and chicken wings.
CEO: Joseph DePinto
Number of Employees: N/A
Market cap: N/A
Enterprise Value: N/A
LTM Revenue: N/A
LTM EBITDA: N/A
Target company: Speedway
Speedway is a subsidiary of Marathon Petroleum, and is an independent fuel provider and chain of petrol stations across the U.S.
CEO: Anthony Kenney
Number of Employees: N/A
Market cap: N/A
Enterprise Value: N/A
LTM Revenue: N/A
LTM EBITDA: US$1.5 billion
RATIONALE
A clear benefit of this merger is extending 7-Eleven’s growing presence across North America. With over 9,800 stores already in the United States and Canada before the transaction, adding all of Speedway’s 3,900 stores to the portfolio brings 7-Eleven’s total number of stores to nearly 14,000 in the U.S. and Canada, and subsequently establishing presence in 47 of the top 50 most populated metro areas in the U.S., positioning the company as a clear industry leader, as seen by its share of the US convenience store market from 5.9 per cent to 8.5 per cent, pushing it further ahead of its closest rival, Canada’s Alimentation Couche-Tard. Moreover from a financial perspective, holding company Seven & I Holdings’ operating profits will double to $2.2billion in the U.S. alone, on top of doubling petrol sales to $40 billion – a crucial leap at a time when demand for fuel had dropped to its all time lowest, as a result of the pandemic.
7-Eleven CEO Joseph DePinto says the following during the announcement of the merger. “We are very excited to welcome Speedway into the 7‑Eleven family. Speedway is a great brand and a strong strategic fit for our business that significantly diversifies our presence throughout the North American market, particularly in the Midwest and on the East Coast”.
RISKS AND UNCERTAINTIES
With consumer demand for petrol halving between March and August 2020, 7-Eleven closed the deal at a value just 4.5% less than the $22 billion valuation they had previously rejected in March. This, in combination with an implied trading multiple of 14x (based on LTM EBITDA of $1.5 billion for Speedway) that is about double the estimated multiple for comparable companies, brings up questions on if 7-Eleven overpaid for this acquisition. However, a more worrying risk, at least at the time of closing, stemmed from suspicions of an illegal transaction, with the FTC claiming it broke competition law, and Rebecca Kelly Slaughter, acting FTC chair, and Rohit Chopra, a Democratic FTC commissioner were particularly “troubled” that the deal was closed during an ongoing investigation. Seven & I, however, claim that a settlement was eventually reached with FTC staff in April, where the holding company agreed to divest 293 stores.