Pedestrians walk past a Couche-Tard convenience store in Montreal, April 18, 2012.Christinne Muschi/Reuters
Just two years after its blockbuster European acquisition, Alimentation Couche-Tard Inc. is actively looking for new deals.
After the company reported quarterly earnings Monday, chief executive officer Alain Bouchard told analysts he believes the company is "in a good position to materialize potential opportunities" – management-speak for 'hunting for deals.' The root of this rekindled acquisition strategy: a better-looking balance sheet.
After buying Scandinavia's Statoil Fuel & Retail ASA for $2.8-billion (U.S.), the company's debt amounted to 3.6 times its adjusted earnings before interest, taxes, depreciation and amortization. Today that ratio has fallen to just 2.44 times, offering much more flexibility.
Although Couche-Tard has already inked some small acquisitions in the past year, such as buying 36 stores in New Mexico, Georgia and Florida through its Circle K subsidiary in November, the acquisitions on the table sound like they could be substantial. (The purchase prices for the 36 tuck-in purchases weren't disclosed.)
Crunching the numbers, Canaccord Genuity analyst Derek Dley believes Couche-Tard could easily afford something worth a couple of billion dollars. "The company has available liquidity of $1.3-billion (Canadian), and we believe this could support up to a $2.0-billion acquisition without the need for additional capital," he wrote in a note to clients.
But the company has to be careful not to overpay. Recent U.S. deals, such as Marathon Petroleum Corp. buying Hess Corp.'s retail operations for $2.9-billion (U.S.), have been inked at rich valuations.
Couche-Tard acknowledged that some deals have been pricey, but management believes there are affordable opportunities in Europe and the U.S. "Despite some multiples that were over our expectation, we believe that we could still see deals at reasonable multiples," chief financial officer Raymond Pare said on the conference call.
He also cautioned analysts to keep their eyes on the company's home market. "Don't forget the Canadian market, because Canada could also be an interesting market in terms of acquisition," he said.
Couche-Tard isn't dead set on buying. "If we don't have any material surprise, we should be able to continue to see a solid annual growth of EBITDA, even without acquisition," Mr. Pare said.
Tim Kiladze