Convenience store operator ARKO, set to go public, offers significant upside for investors thanks to a highly-successful rollup model with a proven track record. Importantly, ARKO can continue to succeed even as COVID-19 concerns linger and many consumers spend more of their money online. That’s according to Bill Jenks, CEO of Intro-act, which published a 45-page report about the company. Please CLICK HERE to download the full report.
ARKO Corp., will be created through a merger with Haymaker Acquisition Corp. II (Nasdaq: HYAC, HYACW, HYACU), a special purpose acquisition company or SPAC that raised $400 million last year to purchase a target and take it public.
On Thursday, ARKO raised its projections for 2020 and 2021 results and said affiliates of MSD Partners, L.P. will purchase up to $100 million of convertible preferred stock. ARKO, which has a controlling stake in GPM Investments, also recently said it plans to remodel approximately 360 of its sites in key locations across the country over the next three to five years using its convenience store prototype.
In an interview with IPO Edge, Mr. Jenks explains the key investment highlights:
IPO Edge: What makes ARKO different from other listed convenience store operators?
ARKO is the most active and capital-efficient consolidator in the highly fragmented convenience store market that is generating excess returns through both organic and acquisition arbitrage. Led by CEO Arie Kotler, ARKO has a best-in-class team management team with significant insider ownership and focus on growth, profitability, and capital efficiency.
IPO Edge: Are convenience stores vulnerable to competition from e-commerce?
C stores are among the few brick and mortars business that are unlikely to get disrupted by the shift to e-commerce. Increasing size of supermarkets and large format hypermarkets are driving consumers to C stores to meet their need for speed and convenience in daily shopping needs. Further, C stores are becoming the eateries of choice for time-strapped and convenience-seeking Americans and are disrupting the foodservice industry – ARKO’s foodservice offering, coupled with the use of technology, position the company well to adapt to evolving consumer needs in the under-penetrated foodservice segment. The company is also a natural beneficiary of the recession-proof nature of the convenience store industry that was on display in the COVID crisis.
IPO Edge: How do newly-acquired stores become more profitable once ARKO buys them?
ARKO has achieved strong store growth over the last several years, primarily by implementing a highly successful acquisition strategy. Since 2013, ARKO has completed 18 acquisitions (including Empire) achieving economies of scale in fuel, enhanced food services while maintaining a strong local brand presence while offering common private label products .
IPO Edge: Could ARKO itself become a takeover target and command a premium?
The listing of ARKO will broaden the shareholder base and allow the marketplace to uncover their efficiencies and ability to drive organic growth. The market will recognize these attributes and value ARKO accordingly.
IPO Edge: How did ARKO hold up during the pandemic? Does it suggest the business could withstand any potential shutdowns?
The U.S. convenience store industry has proven to be recession resilient as demonstrated by the designation of convenience stores as essential businesses during the statewide shutdowns associated with the COVID-19 pandemic. Further, as consumers grew wary of visiting comparatively high-touch grocery stores during the pandemic, convenience stores drew more “fill-in” visits for various food and other grocery items. As a result, convenience stores experienced strong performance backed by record fuel margins and a positive outlook overcoming the COVID-19 uncertainty. According to data from NACS and PDI, convenience stores saw a 5.5% increase in sales (dollars) over the two weeks ending August 23, as a ~20% increase in basket size helped to offset the decrease in transactions, as consumers continued to reduce the frequency of their visits and buy more on a per-trip basis. The two-week rolling data shows that per-store dollar sales grew for 10 straight bi-weekly periods through August 23, suggesting that the industry has been able to weather the COVID-19 storm.
Please CLICK HERE to download the full report from Intro-act.