Haymaker, ARKO Holdings and GPM Investments Sign Non-Binding Letter of Intent for a Business Combination With $1.5B Enterprise Value

Author: Charles Gross | July 13, 2020 05:35am
Haymaker Acquisition Corp. II (NASDAQ:HYAC) ARKO Holdings Ltd. ("Arko"), an Israeli public holding company (TASE: ARKO) and GPM Investments, LLC ("GPM" or the "Company"), announced today that they have entered into a letter of intent ("LOI") for a business combination.  The business combination would result in 100% of both GPM and Arko combining with Haymaker with substantial rollover from existing equity holders; currently Arko owns 68% of GPM and the remaining 32% is held by Davidson Kempner Capital Management LP, funds managed by Ares Management Corporation, and Harvest Partners SCF, L.P.  Based in Richmond, VA, the Company was founded in 2003 with 169 stores and has, since control was acquired by Arko in 2011, grown through acquisition to become a leading convenience store operator with 1,400 locations in 23 states comprised of 1,272 company-operated stores and 128 additional sites to which it delivers fuel.  GPM is the 7th largest convenience store chain in the United States. The Company operates in three segments: retail, which consists of fuel and merchandise sales to retail consumers; wholesale, which supplies fuel to third-party dealers and consignment agents; and GPM Petroleum, which supplies fuel to Company stores as well as independent operators and bulk purchasers. Arie Kotler, Chief Executive Officer of Arko and GPM, commented: "I am very excited about this combination. We have a demonstrated history of profitable growth and a track record of executing consolidation opportunities. Combining with Haymaker as a Nasdaq-listed, pure-play operator of convenience stores greatly enhances our ability to execute our growth strategy in a large, growing, recession resistant industry, while driving value for our combined shareholders."  Steven Heyer, CEO and Executive Chairman of Haymaker, commented: "The proposed transaction with Arko and GPM meets all of the strategic criteria we developed for Haymaker. This is a sizeable transaction at approximately $1.5 billion in enterprise value, with a business that has scale, geographic diversity and significant growth opportunities, led by Arie and a strong management team with public market experience. We intend to continue growing the GPM platform and to pursue strategic initiatives jointly with Arie, a proven consolidator and operator. The structure of the proposed business combination is also appealing – we expect long-term institutional investors and management to roll over significant equity at an attractive valuation relative to U.S.-listed peers." Highlights of the proposed transaction: The Company has grown through acquisition to become the 7th largest convenience store chain in the United States, with 1,272 company-operated locations, excluding pending acquisitions, in 23 states. The Company has increased its store count approximately 4.4x over the past seven years. The Company projects its EBITDA will have grown at a 28%-29% compound annual growth rate ("CAGR") from 2016 through 2020E.  The convenience store industry has demonstrated long-term growth yet remains highly fragmented. The industry has grown at a 3.4% CAGR since 2007 (per NACS State of the Industry Report). The top ten companies control less than 20% of the store base in the United States, providing significant opportunities for future growth. The Company's growth has accelerated in more recent months during the COVID-19 pandemic as consumers shift shopping patterns to convenience stores from other channels.  The Company will also benefit substantially if travel patterns in the United States shift from flying to driving.  Furthermore, the convenience store channel experienced growing sales in the recessionary period of 2008-2009. The combined company will be led by GPM's current management team, which has significant industry and public market experience, including Arko's and GPM's Chief Executive Officer, Arie Kotler. Arko and GPM will also benefit from Haymaker's investing and operational experience at Fortune 500 companies, particularly in the consumer and hospitality sectors. Details of the proposed transaction: Under the terms of the LOI, the enterprise value of the combined company is approximately $1.5 billion, implying ~9.0x estimated proforma 2021E Adjusted EBITDA.1  Haymaker and Arko will announce additional details regarding the proposed business combination when a definitive agreement is executed, which is expected to occur in the third quarter of this year, with a closing anticipated before year end. No assurances can be made that the parties will successfully negotiate and enter into a definitive agreement, or that the proposed transaction will be consummated on the terms or timeframe currently contemplated, or at all. Any transaction would be subject to board and equityholder approval of all companies, regulatory approvals, and other customary conditions. Raymond James & Associates, Inc. is serving as financial and capital markets advisor, Cantor Fitzgerald & Co. is serving as capital markets advisor, Stifel, Nicolaus & Company, Incorporated and Citigroup Global Markets Inc are serving as co-financial advisors and capital markets advisors and DLA Piper LLP (US), Gornitzky & Co., and Ellenoff Grossman & Schole LLP are serving as legal advisors to Haymaker.  Greenberg Traurig, LLP and S. Friedman & Co. are acting as legal advisors to Arko and GPM.

Posted In: HYAC