In the past five years, Parkland Fuel Corp. has more than tripled its market value by snapping up gas stations, propane distributors and other types of fuel sellers across Canada. Its next wave of acquisitions may be in the United States.
Since chief executive Bob Espey took the helm in 2011, Parkland has struck 18 deals valued at more than $2.4-billion (U.S.), including three transactions involving Chevron Corp., Imperial Oil Ltd. and CST Brands Inc. in the past year and a half. Parkland is now Canada's largest gas-station owner, with significant holdings in all of the most-populous provinces.
The market has cheered the acquisition spree, with the shares more than doubling during Mr. Espey's tenure. Even though Parkland has signalled it plans to take a breather after its most recent takeovers, investors are eager for the company to continue rolling up the fragmented fuel-distribution industry. And the next big opportunity may lie south of the border.
"We do have a toehold in the U.S., which is a market that we're certainly interested in," Mr. Espey said in an interview, pointing to the smattering of operations Parkland has in the Northern Plains states.
He also said the company has room to expand in Canada's urban centres, including Parkland's headquarters city of Calgary, where the company currently has no stations.
Acquisitions had long been a part of Parkland's strategy, but kicked into high gear under Mr. Espey. Within two years of taking over, he'd built a corporate-development team to evaluate potential targets, hiring staff from investment banks as well as private-equity and consulting firms. He also improved Parkland's integration process, helping the company more effectively stitch new assets into its distribution system and back-office operations.
"It's easy to buy businesses – it's difficult to do it well," said Mr. Espey. "We focus on doing it well and making sure that we are rigorous and understand what the opportunities are."
The company has developed a reputation for wringing more synergies out of acquisitions than expected, said James Reid, an analyst at Haywood Securities Inc. in Vancouver. Every new deal the company makes allows it to negotiate for better fuel prices as well.
"It's very hard to replicate their supply platform," said Mr. Reid, who recommends buying Parkland shares. "Every time they roll something up, they can buy more fuel at better prices."
Cheap deals
Parkland has been able to strike deals cheaply because major oil companies are eager to sell their gas stations and repair balance sheets that were weakened during the recent oil-price downturn.
Parkland paid about 6.3 times earnings before interest, taxes, depreciation and amortization (EBITDA) in last month's $1.46-billion (Canadian) takeover of Chevron's downstream business in Canada.
Meanwhile, Parkland's own multiple has crept up. It's trading at an enterprise value of about 16.7 times earnings.
While that may be rich for new investors looking to buy in, the multiple is below 10 times EBITDA on a 2018 basis, when increased cash flow from the recent acquisitions will start to kick in, Mr. Reid said.
Parkland's debt has piled up as well. The company is carrying obligations of about 3.5 times EBITDA, which Mr. Espey says is at the top end of the range the gas-station company is comfortable holding.
The company will take the next 12 to 24 months to digest its recent purchases and work down the debt, Mr. Espey said.