Peregrine finally parts with On The Run fuel shops for $1.15bn

Viva Energy is boosting its fuel convenience store chain with the acquisition of On The Run.

Peregrine’s On The Run chain of fuel convenience stores has finally found a home with Viva Energy, which is outlaying $1.15bn to buy the business.

Investment bankers have been for years pitching to Peregrine’s executive chairman, Yasser Shahin, trying to convince him to sell his OTR business.

But sources believe the deal has got across the line now because Viva has offered the right price, and a plan to roll out more stores beyond the borders of South Australia would have been tough going for the Shahin family-owned Peregrine.

The transaction came out of left field on Wednesday morning, although Viva Energy is known to have been on the acquisition trail of late, last year weighing a purchase of chemicals business Ixom.

The move to look at Ixom and buy OTR is part of a trend amongst fuel retailers, looking to diversify earnings away from fuel refining with the anticipated move towards electric vehicles.

Viva, which has previously worked with Bank of America, was self advised, but used law firm Clifford Chance.

OTR is highly localised to the South Australia market, so it is unlikely to bump up against major competition issues from the Australian Competition and Consumer Commission.

But there are some Coles Express stores in the state, operated by Viva, so there could be some asset sales on the cards in the wake of the transaction.

One market expert said they expected the earnings multiple for the transaction to be higher, but they said that the synergies between the two groups of $60m annually for three years were significant.

Attempted buyers in the past of OTR have been EG Group, which previously tried to acquire service stations owned by Woolworths, BP and Ampol.

Then there is the laundry list of private equity groups that have lined up for a tilt at OTR.

DataRoom reported in 2019 that Brookfield was understood to be working on a plan to bring together Peregrine and Caltex Australia (now Ampol) before the latter became subject to an $8.6bn takeover bid by Couche-Tard that never eventuated.

At that time, the price was thought to be around $700m, and South Australian-based Peregrine was not an eager seller.

RBC was believed to be around the situation at that time.

Other private equity firms, including The Carlyle Group, Kohlberg Kravis Roberts and Blackstone, have been known to be circling OTR.

Viva Energy on Wednesday said the price paid for the operation suggested it was 7 times earnings before interest, tax, depreciation and amortisation for the forecast 2023 financial year after synergies.

It said that the deal supports its vision to be an Australian leading convenience retailer with a pathway to establish more than 1000 stores.

Viva will self-fund the acquisition through $1bn of debt and working capital, and a $150m equity sale to the sellers, with the first half subject to a 12-month escrow and the remainder 24 months.

OTR generates at least $3bn of annual revenue, with 6500 staff.

Its convenience retail network includes 205 company-owned and controlled leasehold stores operating under the OTR brand, comprising 174 integrated fuel and convenience stores and 31 stand-alone stores.

The network also includes 92 stores which incorporate quick service restaurants operated by OTA.

The business has leasehold rights to a growth pipeline of 90 sites, largely outside of South Australia, which will be developed into new OTR stores over the next few years.

The convenience retail network generates about 70 per cent of the group’s forecast EBITDA for the 2023 financial year.

Viva is also buying Peregrine’s Smokemart and Giftbox tobacco and cigarette chain, a wholesaler to OTR and other parties that has 257 company-owned and controlled leasehold stores across Australia, with a retail website, and the Morgas Regional and Reliable Petroleum wholesale and lubricant businesses which service customers in regional South Australia.

The deal is by way of share sale, while the SMGB business will be through an asset sale.

The acquisition comes after Viva Energy purchased Coles Express in September last year and the latest deal sees Viva Energy’s earnings from convenience stores increase to 50 per cent from about 30 per cent of the convenience and mobility business, reducing dependency on income from traditional fuels.