MLPs: Sign of the Times

acquisitionIn the last 12 months, more convenience store chains are banking on the benefits of master licensing agreements to improve their position in a widely-fragmented industry.

By David Bennett, Senior Editor

Acquisitions have always played a strategic role in the convenience store industry. Take for example CST Brands Inc., which last month entered into an agreement to acquire convenience store assets, franchisor rights and associated trademarks of Nice N Easy Grocery Shoppes Inc., allowing the San Antonio-based retailer a substantial foothold in the northeastern U.S. market.

Arguably, a bigger company coup came earlier this summer when CST agreed two months ago with Lehigh Gas Corp. to acquire the general partner of Lehigh Gas Partners LP (LGP), and thus gaining operational control of the partnership. Aside from gaining access to capital through LGP’s growth-oriented master license partnership (MLP) vehicle, the $85 million deal provides CST Brands with a platform for long-term drop-down strategy for its U.S. wholesale fuel supply business in the same geographic region where Nice N Easy operates.

Kim Bowers, chair and CEO of CST Brands, explained that while the Nice N Easy deal is a an important component to the company’s expansion footprint, extending throughout the greater Syracuse area into the North Country, Mohawk Valley and Finger Lakes, the versatility of LGP’s operating network—especially its sustainable fuel distribution platform —puts CST in an ideal position to examine new acquisition targets.

STRATEGIC DARLINGS
C-store companies attempt to build flexibility into their logistical operations, enabling them to respond more nimbly to changing market conditions, often outperforming competitors with less supple footprints. More and more expansion, accomplished through mergers and acquisitions, is a successful strategy in the highly fragmented world of convenience retail.

Because MLPs are classified as partnerships, they avoid corporate income tax at both state and federal levels. Unlike a corporation, which pays taxes on its own income, the income earned by an MLP is passed through to its owners—the public investors. These public investors, in turn, pay the income tax at their individual rates. They have become strategic darlings in the convenience industry because they offer streamlined corporate structure at a lower cost of capital—for starters.

Stay tuned to CSD’s September issue for more on CST Brands’ recent acquisitions and MLPs in the c-store industry.

 

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