Alimentation Couche-Tard Inc.
Total-ly ATD: Company announces strategic acquisition in Europe at attractive multiple
TSX: ATD | CAD 60.94 | Outperform | Price Target CAD 82.00
Sentiment: Positive
Bottom line: Positive both financially and strategically.
News: ATD to acquire 1,582 sites in Germany and the Netherlands and 60% controlling interest in 611 sites in Belgium and Luxembourg for a total of 2,193 locations from TotalEnergies. Total cost is Euro 3.1B (~USD $3.3B), investor presentation cites ~8x trailing EBITDA multiple.
Transaction closing: Targeting calendar year-end 2023, subject to typical approvals. Given ATD does not currently have operations in any of these geographies, and that the company has been a responsible actor in Europe for over 10 years, in our view transaction should not face any substantial hurdles.
Funding/Balance Sheet Implications: Transaction to be funded from cash on hand, existing credit facilities, US Commercial Paper program and new term loan. Leverage post closing, which is expected to be by YE 2023 a still-modest ~2.1x, including another contemplated acquisition for which the company has a binding interest. Investor deck notes that above and beyond this transaction, ATD has incremental Balance Sheet capacity of ~$10 B.
What is ATD acquiring: Sites are high quality, and extend ATD's footprint into four new markets previously identified by management as attractive, and with strong market positions: #1 in Belgium, #2 in Luxembourg, #4 in Germany and in the Netherlands.
Synergies: Investor presentation cites synergies ~EUR 120 MM over the first three years. Historically ATD management has noted a targeted 35-50% EBITDA lift post-transaction. ATD has extensive experience in successfully acquiring c-store networks from integrated oil companies, and subsequently creating compelling value for investors.
In our view, this transaction has all the hallmarks of an ATD deal: strategically compelling, geographically complementary, attractive valuation to deliver financially accretive transaction for shareholders. We also note that depressed Euro exchange rate (-9% Y/Y as per ATD's FQ3 release) suggests incremental upside assuming FX normalizes.
ATD released FQ3 results yesterday, Link to note.
Call on the Q3 results and the transaction at 8:00 am, dial-in 1-888-390-0549 or 1-416-764-8682, access code 59090454#.