Annual report pursuant to Section 13 and 15(d)

Acquisitions

v3.22.4
Acquisitions
12 Months Ended
Dec. 31, 2022
Business Combinations [Abstract]  
Acquisitions

4. Acquisitions

Quarles Acquisition

On July 22, 2022, the Company consummated its acquisition from Quarles Petroleum, Incorporated (“Quarles”) of certain assets (the “Quarles Acquisition”), including 121 proprietary Quarles-branded cardlock sites and 63 third-party cardlock sites for fleet fueling operations, and 46 independent dealer locations, including certain lessee-dealer sites.

The total consideration for the Quarles Acquisition as set forth in the purchase agreement was approximately $170 million plus the value of inventory on the closing date, subject to customary closing adjustments. The Company financed $40 million of the purchase price with the Capital One Line of Credit (as defined in Note 12 below), and Oak Street Real Estate Capital Net Lease Property Fund, LP (“Oak Street”), under the Companys standby real estate purchase, designation and lease program agreement with Oak Street, dated as of May 3, 2021 (as amended, the “Program Agreement”), paid approximately $129.3 million of the consideration in exchange for fee simple ownership in 39 sites. At the closing, pursuant to the Program Agreement, the Company amended one of its master leases with Oak Street to add the sites Oak Street acquired in the transaction under customary lease terms. For accounting purposes, the transaction with Oak Street was treated as a sale-leaseback. Because the sale-leaseback was off-market, a financial liability of $20.2 million was recorded, resulting in interest expense recognized over the lease term. Additionally, right-of-use assets and operating lease liabilities of approximately $61.6 million were recorded in connection with the operating lease, after reducing for accounting purposes from the contractual lease payments the amount attributable to the repayment of the additional financing.

The details of the Quarles Acquisition were as follows:

 

 

Amount

 

 

 

(in thousands)

 

Fair value of consideration transferred:

 

 

 

Cash

 

$

14,847

 

GPMP Capital One Line of Credit

 

 

40,000

 

Liability resulting from contingent consideration

 

 

826

 

Consideration provided by Oak Street

 

 

129,316

 

Total consideration

 

$

184,989

 

Assets acquired and liabilities:

 

 

 

Inventory

 

$

12,300

 

Other assets

 

 

1,181

 

Property and equipment, net

 

 

146,055

 

Right-of-use assets under operating leases

 

 

32,916

 

Intangible assets

 

 

30,010

 

Environmental receivables

 

 

8

 

Total assets

 

 

222,470

 

Other liabilities

 

 

(1,168

)

Environmental liabilities

 

 

(316

)

Asset retirement obligations

 

 

(5,195

)

Operating leases

 

 

(30,802

)

Total liabilities

 

 

(37,481

)

Total identifiable net assets

 

 

184,989

 

Goodwill

 

$

-

 

 

 

 

 

Consideration paid in cash

 

$

54,847

 

Consideration provided by Oak Street

 

 

129,316

 

Net cash outflow

 

$

184,163

 

The initial accounting treatment of the Quarles Acquisition reflected in these consolidated financial statements is provisional as the Company has not yet finalized the initial accounting treatment of the business combination, and in this regard, has not finalized the valuation of some of the assets acquired and the goodwill resulting from the Quarles Acquisition, mainly due to the limited period of time between the Quarles Acquisition closing date and the date of these consolidated financial statements. Therefore, some of the financial information presented with respect to the Quarles Acquisition in these consolidated financial statements remains subject to change.

The Company included identifiable tangible assets and identifiable liabilities at their respective fair values based on the information available to the Company’s management on the Quarles Acquisition closing date, including, among other things, a preliminary valuation performed by external consultants for this purpose. The useful life of the wholesale fuel supply contracts was 4.3 years, the useful life of the contracts related to the third-party cardlock sites was two years, and the useful life of the customer relationships related to the proprietary cardlock sites and the proprietary fuel cards that give customers access to a nationwide network of fueling sites was 20 years.

The Company’s preliminary accounting treatment of the Quarles Acquisition resulted in no goodwill being recorded.

Acquisition-related costs amounting to approximately $2.3 million and $0.6 million have been excluded from the consideration transferred and have been recognized as an expense within other expenses, net in the consolidated statements of operations for the years ended December 31, 2022 and 2021, respectively. No acquisition-related costs were recognized for the year ended December 31, 2020.

Results of operations for the Quarles Acquisition for the period subsequent to the acquisition closing date were reflected in the consolidated statement of operations for the year ended December 31, 2022. For the period from the Quarles Acquisition closing date through December 31, 2022, the Company recognized $317.2 million in revenues and $13.7 million in net income related to the Quarles Acquisition.

Pride Convenience Holdings, LLC Acquisition

On December 6, 2022, the Company acquired all of the issued and outstanding membership interests in Pride Convenience Holdings, LLC (“Pride”), which operates 31 convenience stores and gas stations in Connecticut and Massachusetts (the “Pride Acquisition”), pursuant to its purchase agreement with Pride Parent, LLC.

The total purchase price for the Pride Acquisition was approximately $230.0 million plus the value of inventory at the closing, subject to certain closing adjustments. The Company financed approximately $30.0 million of the cash consideration including the value of inventory and other closing adjustments with the Capital One Line of Credit and cash on hand. Oak Street, under the Program Agreement, paid the remaining consideration to acquire the entity holding certain real estate assets of Pride immediately prior to the closing of the Pride Acquisition. At the closing, pursuant to the Program Agreement, the Company entered into a master lease with Oak Street for the sites Oak Street acquired in the transaction under customary lease terms. Although Oak Street acquired the entity holding certain real estate assets immediately prior to the Company consummating the Pride Acquisition, for accounting purposes, the transaction with Oak Street was treated as a sale-leaseback. Because the sale-leaseback was off-market, a financial liability of $34.8 million was recorded, resulting in interest expense recognized over the lease term. Additionally, right-of-use assets and operating lease liabilities of approximately $105.5 million were recorded in connection with the operating lease, after reducing for accounting purposes from the contractual lease payments the amount attributable to the repayment of the additional financing.

The details of the Pride Acquisition were as follows:

 

 

Amount

 

 

 

(in thousands)

 

Fair value of consideration transferred:

 

 

 

Cash

 

$

10,669

 

GPMP Capital One Line of Credit

 

 

20,000

 

Payable to Pride Parent, LLC

 

 

3,055

 

Consideration provided by Oak Street

 

 

201,654

 

Total consideration

 

$

235,378

 

Assets acquired and liabilities:

 

 

 

Cash and cash equivalents

 

$

3,591

 

Trade receivables

 

 

6,228

 

Inventory

 

 

5,126

 

Other assets

 

 

951

 

Property and equipment

 

 

204,581

 

Right-of-use assets under operating leases

 

 

2,245

 

Intangible assets

 

 

1,824

 

Environmental receivables

 

 

42

 

Deferred tax asset

 

 

6,527

 

Total assets

 

 

231,115

 

Accounts payable

 

 

(11,073

)

Other liabilities

 

 

(1,259

)

Environmental liabilities

 

 

(70

)

Asset retirement obligations

 

 

(675

)

Operating leases

 

 

(2,245

)

Total liabilities

 

 

(15,322

)

Total identifiable net assets

 

 

215,793

 

Goodwill

 

$

19,585

 

 

 

 

 

Consideration paid in cash by the Company

 

$

30,669

 

Consideration provided by Oak Street

 

 

201,654

 

Less: cash and cash equivalent balances acquired

 

 

(3,591

)

Net cash outflow

 

$

228,732

 

The initial accounting treatment of the Pride Acquisition reflected in these consolidated financial statements is provisional as the Company has not yet finalized the initial accounting treatment of the business combination, and in this regard, has not finalized the valuation of some of the assets and liabilities acquired and the goodwill resulting from the Pride Acquisition, mainly due to the limited period of time between the Pride Acquisition closing date and the date of these consolidated financial statements. Therefore, some of the financial information presented with respect to the Pride Acquisition in these consolidated financial statements remains subject to change.

The Company included identifiable tangible assets and identifiable liabilities at their respective fair values based on the information available to the Company’s management on the Pride Acquisition closing date, including, among other things, a preliminary valuation performed by external consultants for this purpose. The useful life of the trade name was five years. The liquor licenses have indefinite useful lives.

As a result of the preliminary accounting treatment of the Pride Acquisition, the Company recorded goodwill of approximately $19.6 million, all of which was allocated to the GPMP segment and attributable to the opportunities to expand into new geographic

locations and add significant volume to the GPMP segment. None of the goodwill recognized is tax deductible for U.S. income tax purposes.

Acquisition-related costs amounting to approximately $2.2 million have been excluded from the consideration transferred and have been recognized as an expense within other expenses, net in the consolidated statements of operations for the year ended December 31, 2022. No acquisition-related costs were recognized for the years ended December 31, 2021 and 2020.

Results of operations for the Pride Acquisition for the period subsequent to the acquisition closing date were reflected in the consolidated statement of operations for the year ended December 31, 2022. For the period from the Pride Acquisition closing date through December 31, 2022, the Company recognized $25.7 million in revenues and $1.1 million in net income related to the Pride Acquisition.

ExpressStop Acquisition

On May 18, 2021, the Company acquired, in conjunction with two U.S. real estate funds that are unrelated third parties (each a “Real Estate Fund,” collectively the “Real Estate Funds”), 60 self-operated convenience stores and gas stations located in the Midwestern U.S. for consideration of approximately $87 million plus the value of inventory and cash in stores on the closing date (the “ExpressStop Acquisition”). The Company financed its share of the consideration from its own sources and the Real Estate Funds paid the purchase price for the seller’s real estate they acquired as described below.

At the closing of the transaction, (i) the Company purchased and assumed, among other things, certain vendor agreements, fee simple ownership in 10 sites, equipment in the sites, inventory and goodwill with regard to the acquired activity; and (ii) in accordance with agreements between the Company and each of the Real Estate Funds, in consideration of approximately $78 million, the Real Estate Funds purchased the fee simple ownership in 44 of the sites, which are leased to the Company under customary lease terms. One of the Real Estate Funds granted the Company an option to purchase the fee simple ownership in 24 of the sites following an initial four-year period for a purchase price agreed upon between the parties. For accounting purposes, the transaction with this Real Estate Fund was treated as a failed sale-leaseback and resulted in recording a financial liability of approximately $44.2 million, which included an additional site added to the agreement with the Real Estate Fund in October 2021. For accounting purposes, the transaction with the other Real Estate Fund, which purchased 20 of the sites, was treated as a sale-leaseback and the Company recorded right-of-use assets and operating lease liabilities of approximately $30.0 million in connection therewith. The Company’s total net cash outlay was approximately $15.9 million.

The details of the business combination were as follows:

 

 

Amount

 

 

 

(in thousands)

 

Fair value of consideration transferred:

 

 

 

Cash

 

$

16,191

 

Consideration provided by the Real Estate Funds

 

 

78,496

 

Total consideration

 

$

94,687

 

Assets acquired and liabilities:

 

 

 

Cash and cash equivalents

 

$

258

 

Inventory

 

 

7,507

 

Other assets

 

 

326

 

Property and equipment

 

 

76,550

 

Intangible assets

 

 

2,740

 

Environmental receivables

 

 

46

 

Deferred tax asset

 

 

2,435

 

Total assets

 

 

89,862

 

Other liabilities

 

 

(213

)

Environmental liabilities

 

 

(70

)

Asset retirement obligations

 

 

(2,448

)

Total liabilities

 

 

(2,731

)

Total identifiable net assets

 

 

87,131

 

Goodwill

 

$

7,556

 

 

 

 

 

Consideration paid in cash by the Company

 

$

16,191

 

Consideration provided by the Real Estate Funds

 

 

78,496

 

Less: cash and cash equivalent balances acquired

 

 

(258

)

Net cash outflow

 

$

94,429

 

 

The Company included identifiable tangible and intangible assets and identifiable liabilities at their respective fair values based on the information available to the Company’s management on the acquisition closing date, including, among other things, a valuation performed by external consultants for this purpose. The useful life of the trade name on the date of acquisition was five years. The liquor licenses have indefinite useful lives.

As a result of the ExpressStop Acquisition, the Company recorded goodwill of approximately $7.6 million, all of which was allocated to the GPMP segment and attributable to the opportunity to add significant volume to the GPMP segment. None of the goodwill recognized is tax deductible for U.S. income tax purposes.

Acquisition-related costs amounting to approximately $2.5 million have been excluded from the consideration transferred and have been recognized as an expense within other expenses, net in the consolidated statement of operations for the year ended December 31, 2021. No acquisition-related costs for the ExpressStop Acquisition were recognized for the years ended December 31, 2022 and 2020.

Results of operations for the ExpressStop Acquisition for the period subsequent to the acquisition closing date were reflected in the consolidated statement of operations for the year ended December 31, 2021. For the period from the ExpressStop Acquisition closing date through December 31, 2021, the Company recognized $130.0 million in revenues and $2.0 million in net income related to the ExpressStop Acquisition.

Handy Mart Acquisition

On November 9, 2021, the Company acquired the operations and leasehold interest of 36 Company-operated convenience stores and gas stations and one development parcel, located in North Carolina (the “Handy Mart Acquisition” and together with the ExpressStop Acquisition, the “2021 Acquisitions”). The total consideration for the transaction, including the purchase of real estate by Oak Street pursuant to the Program Agreement, was approximately $112 million plus the value of inventory and cash in the stores on the closing date. The Company financed the consideration for the acquired operations from its own sources, and Oak Street agreed to pay the remaining consideration for certain of the seller’s sites it has agreed to acquire as described below.

At the closing of the transaction, the Company purchased and assumed, among other things, certain vendor agreements, equipment, inventory and goodwill with regard to the acquired assets and paid approximately $12 million plus the value of inventory and cash in the stores on the closing date. In the fourth quarter of 2021, Oak Street purchased the fee simple ownership in 28 of the sites for approximately $93.2 million and in the first quarter of 2022, Oak Street purchased the fee simple ownership in the remaining leased site from the seller for approximately $6.7 million. Additionally, at the closing, pursuant to the Program Agreement, the Company entered into a master lease with Oak Street under customary lease terms for the sites Oak Street acquired in the Handy Mart Acquisition. As of the closing of the transaction, the Company leases one site, the development parcel and a maintenance facility from the seller and the remaining six sites from other third parties.

The details of the business combination were as follows:

 

 

Amount

 

 

 

(in thousands)

 

Fair value of consideration transferred:

 

 

 

Cash

 

$

17,626

 

Consideration provided by Oak Street

 

 

93,202

 

Total consideration

 

$

110,828

 

Assets acquired and liabilities:

 

 

 

Cash and cash equivalents

 

$

50

 

Inventory

 

 

4,754

 

Other assets

 

 

671

 

Property and equipment

 

 

105,824

 

Right-of-use assets under operating leases

 

 

12,047

 

Intangible assets

 

 

1,290

 

Total assets

 

 

124,636

 

Other liabilities

 

 

(437

)

Environmental liabilities

 

 

(40

)

Asset retirement obligations

 

 

(1,348

)

Operating leases

 

 

(12,047

)

Total liabilities

 

 

(13,872

)

Total identifiable net assets

 

 

110,764

 

Goodwill

 

$

64

 

 

 

 

 

Consideration paid in cash by the Company

 

$

17,626

 

Consideration provided by Oak Street

 

 

93,202

 

Less: cash and cash equivalent balances acquired

 

 

(50

)

Net cash outflow

 

$

110,778

 

The Company included identifiable tangible and intangible assets and identifiable liabilities at their respective fair values based on the information available to the Company’s management on the acquisition closing date, including, among other things, a valuation performed by external consultants for this purpose. The useful life of the trade name on the date of acquisition was five years.

As a result of the Handy Mart Acquisition, the Company recorded goodwill of approximately $0.06 million, all of which was allocated to the GPMP segment and attributable to the opportunity to add volume to the GPMP segment. None of the goodwill recognized is tax deductible for U.S. income tax purposes.

Acquisition-related costs amounting to approximately $0.6 million have been excluded from the consideration transferred and have been recognized as an expense within other expenses, net in the consolidated statement of operations for the year ended December 31, 2021. No acquisition-related costs were recognized for the years ended December 31, 2022 and 2020.

Results of operations for the Handy Mart Acquisition for the period subsequent to the acquisition closing date were reflected in the consolidated statement of operations for the year ended December 31, 2021. For the period from the Handy Mart Acquisition closing date through December 31, 2021, the Company recognized $32.7 million in revenues and $0.9 million in net income related to the Handy Mart Acquisition.

Empire Acquisition

Following a purchase agreement entered into on December 17, 2019 (the “Purchase Agreement”) with unrelated third-parties (the “Empire Sellers”), on October 6, 2020, the acquisition closed for the purchase of (i) the Empire Sellers’ wholesale business of supplying fuel which included 1,453 gas stations independently-operated by others and (ii) 84 Company-operated convenience stores and gas stations (the “Empire Acquisition”).

As part of the Empire Acquisition, on the closing date, the Empire Sellers: (i) sold to GPMP the rights according to agreements with fuel suppliers and all of the rights to supply fuel to 1,537 sites; (ii) sold to a subsidiary of GPM the fee simple ownership rights in 64 sites; (iii) assigned to various of GPM’s subsidiaries leases of 132 sites (including two vacant parcels and one non-operating site) (the “third party leases”); (iv) leased to certain of GPM’s subsidiaries 34 sites (including one vacant parcel) that were valued at approximately $60 million that were owned by the Empire Sellers, at terms as specified below (collectively the “Sellers’ Leases”); and (v) sold and assigned to various of GPM’s subsidiaries and GPMP the equipment, inventory, agreements, intangible assets and other rights with regard to the wholesale and retail businesses acquired (collectively, the “Acquired Operations”).

The consideration to the Empire Sellers for the Acquired Operations, based on the Purchase Agreement, as amended, was as follows:

The net consideration paid to the Empire Sellers totaled approximately $351 million (the “Base Consideration”), including post-closing adjustments, and in addition, approximately $10.6 million was paid for the cash and inventory in the stores, net of deposit amounts and other collateral provided by the independent dealers, as of the closing date (collectively, the “Closing Consideration”) including post-closing adjustments.
On each of the first five anniversaries of the closing date, the Empire Sellers will be paid an amount of $4.0 million (total of $20.0 million) (the “Additional Consideration”). If the Empire Sellers are entitled to amounts on account of the Contingent Consideration (as defined below), these amounts will initially be applied to accelerate payments on account of the Additional Consideration. For the years ended December 31, 2022 and 2021, the Company paid the Empire Sellers $6.1 million and $4.0 million of Additional Consideration, respectively.
An amount of up to $45.0 million (the “Contingent Consideration”) will be paid to the Empire Sellers according to mechanisms set forth in the Purchase Agreement, with regard to the occurrence of the following events during the five years following the closing date (the “Earnout Period”): (i) sale and lease to third parties or transfer to Company-operation by GPM of sites with leases to third parties that expired or are scheduled to expire during the Earnout Period, (ii) renewal of agreements with independent dealers at sites not leased or owned by GPM which agreements expired or are scheduled to expire during the Earnout Period, (iii) improvement in the terms of the agreements with fuel suppliers (with regard to the Acquired Operations and/or GPM’s sites as of the closing date), (iv) improvement in the terms of the agreements with transportation companies (with regard to the Acquired Operations and/or GPM’s sites as of the closing date), and (v) the closing of additional wholesale transactions that the Empire Sellers had engaged in prior to the closing date. The measurement and payment of the Contingent Consideration will be made once a year.

GPM was granted options to purchase each of the sites during and at the end of the initial five year term and has a right of first refusal to purchase the assets in the event of sale of the assets to third parties during such term, all as determined in the lease agreements. Refer to Note 8 for detail on the exercise of these purchase options.

The Company paid the Closing Consideration using $350 million of proceeds from the Capital One Line of Credit and $63 million of proceeds from a term loan under the Ares Credit Agreement, as described in Note 12 below.

The details of the business combination were as follows:

 

 

 

Amount

 

 

 

(in thousands)

 

Fair value of consideration transferred:

 

 

 

Cash

 

$

11,790

 

GPMP Capital One Line of Credit

 

 

350,000

 

Liability resulting from Additional Consideration

 

 

17,560

 

Liability resulting from Contingent Consideration

 

 

7,205

 

Total consideration

 

$

386,555

 

Assets acquired and liabilities:

 

 

 

Cash and cash equivalents

 

$

174

 

Inventory

 

 

12,464

 

Other assets

 

 

4,898

 

Property and equipment

 

 

109,317

 

Right-of-use assets under operating leases

 

 

210,352

 

Right-of-use assets under financing leases

 

 

15,120

 

Wholesale fuel supply contracts

 

 

194,000

 

Option to acquire ownership rights

 

 

8,446

 

Other intangible assets

 

 

750

 

Environmental receivables

 

 

491

 

Deferred tax asset

 

 

11,459

 

Total assets

 

 

567,471

 

Other liabilities

 

 

(4,753

)

Environmental liabilities

 

 

(1,278

)

Asset retirement obligations

 

 

(15,168

)

Operating leases

 

 

(202,500

)

Financing leases

 

 

(13,357

)

Total liabilities

 

 

(237,056

)

Total identifiable net assets

 

 

330,415

 

Goodwill

 

$

56,140

 

 

 

 

 

Consideration paid in cash

 

$

361,790

 

Less: cash and cash equivalent balances acquired

 

 

(174

)

Net cash outflow

 

$

361,616

 

 

The Company included identifiable tangible and intangible assets and identifiable liabilities at their respective fair values based on the information available to the Company’s management on the closing date, including, among other things, a valuation performed by external consultants for this purpose. Specifically, the valuation of the wholesale fuel supply contracts was performed by an external consultant using a combination of the income approach with a weighted average discount rate of 13% and the market approach with a multiple of 4.0x EBITDA. The weighted average useful life of the wholesale fuel supply contracts on the date of acquisition was 12 years. The option to acquire ownership rights was valued using a Black-Scholes model.

In 2021, the Company finalized the accounting treatment of the Empire Acquisition, including the valuation of some of the assets acquired and the goodwill resulting from the acquisition. As a result, the Company primarily reduced property and equipment by approximately $16.3 million, reduced the option to acquire ownership rights by $2.8 million, increased the deferred tax asset by approximately $3.1 million and reduced consideration by $2.1 million. The adjustments to the assets acquired resulted in an increase in goodwill of approximately $16.2 million. These adjustments resulted in a reduction in depreciation and amortization expenses recorded by approximately $2.3 million, of which approximately $0.8 million related to amounts recorded for the year ended December 31, 2020.

As a result of the Empire Acquisition, the Company recorded goodwill of approximately $56.1 million, all of which was allocated to the GPMP segment and attributable to the opportunities to expand into new geographic locations and add a significant amount of volume to the GPMP segment. None of the goodwill recognized is tax deductible for U.S. income tax purposes.

Acquisition-related costs amounting to approximately $0.3 million and $4.2 million have been excluded from the consideration transferred and have been recognized as an expense within other expenses, net in the consolidated statements of operations for the years ended December 31, 2021 and 2020, respectively. No acquisition-related costs were recognized for the year ended December 31, 2022.

Results of operations for the acquisition were reflected in the consolidated statement of operations for the year ended December 31, 2020 for the period subsequent to the closing date. For the period from the closing date through December 31, 2020, the Company recognized $477.3 million in revenues and $7.7 million in net loss related to the Empire Acquisition.