By Ritu Joseph and Anusha Kaushik (London Business School), Sonia Andrzejuk, Argyro Charizona, Mikołaj Borowiak and Vlad Marcu (Bocconi)
Photo: Jay Skyler (Unsplash)
Overview of the deal
Acquirer: British Petroleum
Target: TravelCenters of America
Implied Equity Value: $86 per share (74% premium to unaffected)
Total Transaction Size: $1.3bn
Announced date: 16 February 2023
Expected close date: Mid 2023
Target advisor: Citi (Financial), Jones Day, Ropes & Gray (Legal)
Acquirer advisor: Goldman Sachs, Robey Warshaw (Financial), Sullivan & Cromwell (Legal)
In a move towards becoming more sustainable, BP has acquired TravelCentres of America (TA) in a transaction valued at $1.3bn. This acquisition will serve as an addition to BP’s pre-existing convenience and mobility business and will allow it to expand its offerings with EV charging stations, hydrogen and biofuels. In order for the sale to be approved by shareholders (namely, the majority shareholders of TA), it was also necessary to gain approval from the Service Properties Trust and RMR Group which own 7.8% and 4.1% of TA’s shares outstanding, respectively. The deal is set to be closed by mid-2023, subject to shareholder and regulatory approval.
“The announcement that BP is acquiring TA is a result of the successful implementation of our turnaround and strategic plans. We have improved our core travel centre business, expanded our network, launched our specialised business unit eTA to prepare for the future of alternative fuels.” - Jonathan M. Pertchik, CEO (TA)
Company Details (Acquirer - BP)
With a founding history dating back to the early 1900s and operations in over 70 countries worldwide, British Petroleum (BP) is a multinational oil & gas company headquartered in London, England. The company has its primary operations in the exploration, production, refining, marketing & distribution of oil, gas & petroleum. With a goal of becoming a net-zero company by 2050, the company is actively investing in renewable technologies of power, wind, solar & biofuels. In North America, British Petroleum (BP) operates through its subsidiary, BP America Inc. BP America is based in Houston, Texas, and is responsible for BP's exploration, production, refining, and marketing operations in the United States. The company has set several goals in: expanding the EV charging network by installing 500,000 public EV charging points by 2030; increasing the sales of low-carbon fuels to 50% of its total fuel sales by 2030; and shifting to hydrogen as a low-carbon alternative. BP's Convenience & Mobility business has a presence in more than 15 countries around the world & operates under various brands, such as BP Connect, ampm, and Wild Bean Cafe.
Founded in 1909, headquartered in London, UK
CEO: Bernard Looney
Number of employees: 66,000 (2021)
Market Cap: $104.4bn (as of 17/03/2023)
LTM Revenue: $239.7bn
LTM EBITDA: $54.3bn
LTM EV/Revenue: 0.6x
LTM EV/EBITDA: 2.5x
Company Details (Target - TravelCenters of America)
TravelCenters of America (TA) is a leading travel centre operator that provides essential services to the professional trucking industry and the general travelling public. The company operates over 260 locations in 44 states in the United States, as well as in Canada, under several well-known brand names, including TA, Petro Stopping Centers, and TA Express.
TA offers a wide range of amenities and services at its travel centres, including fuel stations, convenience stores, fast food and full-service restaurants, showers, laundry facilities, truck repair services, and parking for cars and trucks. By providing a one-stop-shop for travellers and truckers alike, TA aims to offer everything its customers need to keep moving down the road safely and efficiently.
Founded in 1972, headquartered in Westlake, Ohio, US
CEO: Jon Pertchik
Number of employees: 20,500 (2019)
Market Cap: $1.3bn (as of 17/03/2023)
LTM Revenue: $10.8bn
LTM EBITDA: $362.6mn
LTM EV/Revenue: 0.3x
LTM EV/EBITDA: 8.5x
Projections and Assumptions
Even though TA’s shareholders are receiving a per share cash offer of $86, an 84% premium to the company's average stock price over the last month, after the deal’s announcement, TA’s shares surged to a whopping $84.3 in morning trading & thus might make TA’s shareholders question the premium received. The deal overall is expected to earn a Return on Investment (ROI) of 15% according to BP’s Chief Executive Bernard Looney. The acquisition is supposed to also add to BP's target of $1.5 billion in EBITDA by 2025 in its convenience and EV charging business, with a longer-term goal of $4 billion in EBITDA by 2030. Leading with an acquisition history of acquiring U.S. biogas producer Archaea for $4.1 billion, BP is betting on the expansion of low-carbon fuels and recently announced plans to invest $1 billion in EV charging across the U.S. by 2030.
The acquisition is a significant move for BP, which aims to expand its presence in the US market. TA's convenience services business generates almost double BP's global convenience gross margins, and with this acquisition, BP gains access to TA's strategically located network of highway sites, which greatly complements its off-highway convenience and mobility business. This will enable BP to offer seamless nationwide fleet services in the future. Additionally, the acquisition is expected to add EBITDA immediately, projected to grow to around $800mn by 2025. The acquisition is expected to deliver a return of over 15% and to be accretive to free cash flow per share from 2024, which is a positive sign for the company's financial outlook. This transaction also brings growth opportunities for four of BP's five transition growth engines, including convenience, EV charging, biofuels/renewable natural gas (RNG), and, later, hydrogen. Overall, the acquisition of TA positions BP to grow its business in the US market and to seize growth opportunities in the transition to a low-carbon future.
Risks and Uncertainties
BP’s acquisition of TravelCenters of America (TA) is expected to complete smoothly, given there are no significant legal and administrative approval issues. BP’s bid values TA at 4.2x TTM adjusted EBITDA. This may not seem like a significant multiple, but it is in contrast with the 2.0x–2.3x and 3.4x–3.5x multiples the company fetched in 2017–2018 and 2019–2021. Furthermore, two of TA’s major shareholders - SVC (7.8%) and RMR (4.1%) are already in favour of the acquisition. The target’s shareholder base consists of some notable passive institutional investors, such as BlackRock (6%) and Goldman Sachs (3%), which seem unlikely to oppose a strategic deal announced at a very sizable premium.
Antitrust opposition is also improbable. In the US highway travel centre market, TA's market share constitutes only 4%. The biggest rivals, Pilot Flying J and Love's, have market shares of 12% and 8%, respectively. The industry is very fragmented, with many small regional players in addition to these national operators of travel centres.
Although the deal is expected to close by mid-2023 without facing significant hurdles, macroeconomic factors could pose a threat to the acquisition’s synergies. If energy and fuel prices remain high, consumer demand may stagnate or decline, which would indicate that the acquisition might not produce the anticipated cash flow. Although the Fed is raising interest rates steadily in an effort to curb excessive inflation, it is still unclear whether and when energy prices will return to their pre-Russia-Ukraine war levels.
“This is bp’s strategy in action. We are doing exactly what we said we would, leaning into our transition growth engines. This deal will grow our convenience and mobility footprint across the US and grow earnings with attractive returns.” - Bernard Looney, CEO (BP)