Since Chief Executive Officer Bob Espey took the helm in 2011, Parkland has struck 18 deals valued at more than $2.4 billion, 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 nation’s most-populous provinces.
The market has cheered the acquisition spree, with the shares more than doubling during Espey’s tenure. Even though Parkland has signaled it plans to take a breather after its most recent takeovers, investors are eager for it 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,” 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 centers, 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 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 Espey, who’s 52 years-old. “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 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 Reid, who recommends buying Parkland shares. “Every time they roll something up, they can buy more fuel at better prices.”
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 in last month’s C$1.46 billion ($1.07 billion) 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, Reid said.
Parkland’s debt has piled up as well. The company is carrying obligations of about 3.5 times Ebitda, which Espey says is at the top end of the range Parkland is comfortable with.
The company will take the next 12 to 24 months to digest its recent purchases and work down the debt, Espey said.
While Parkland has built a “pretty steady business,” the company could face risks from additional regulations placed on gas stations or a shutdown in capital markets, which would make it harder to fund its acquisitions, said Steve Belisle, who helps manage C$3 billion in assets, including Parkland shares, at Manulife Asset Management in Montreal.
Parkland also took on a refinery as part of the Chevron deal, a new business for the company and one that may add volatility to its earnings, Belisle said. But he’s confident that Espey and Parkland will manage the new asset well.
“He’s been disciplined, down to Earth,” Belisle said. “I hope he stays for a long time.”
For his part, Espey said that the Burnaby refinery included in the Chevron deal was integral to the operations. He stressed that Parkland wasn’t looking to move into the refining business, but wouldn’t avoid an acquisition if a refinery was part of the package.
The company now holds about a 16 percent share of the gasoline market in Canada, up from about 5 percent in 2012. But Parkland also runs wholesale operations and enterprises that sell lubricants, propane and other fuels to businesses and homeowners. In fact, retail fuels accounted for only 44 percent of Parkland’s revenue last year.
Espey said his next acquisition could be in one of those less-visible markets, possibly in propane in Canada. But that will depend on what’s available when Parkland is ready to start making big deals again.
“Part of our culture is being deliberate and careful and making sure that we can deliver,” Espey said. “Once we feel capable of delivering, we’ll be back in the market looking for new assets.”