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GPM Investments, LLC Valuation Study
As of December 31, 2015
Valuation Study - As of December 31, 2015 GPM Investments, LLC ii
BDO Ziv Haft Consulting & Management LTD. Amot Bituach House Building B, Menachem Begin Rd. 46-48 Tel Aviv 66184 Tel: 972 3 6386894 Fax: 972 3 6382511 Website: www.bdo.co.il
GPM Investments, LLC
Dear Mr. Arie Kotler, President and CEO
Per your request, BDO Ziv Haft Consulting & Management Ltd. (hereinafter: "BDO")
has performed a valuation study (hereinafter: the "Study") for GPM Investments LLC
(Hereinafter: the "Company" or "GPM"), as of December 31, 2015 (hereinafter: the
"Valuation Date").
To the best of our knowledge there is no restriction, legal or other, on performing
the Study enclosed herein.
The Study was prepared for GPM and its management (hereinafter: the
"Management") and may be provided to GPM’s and its affiliates’ external auditors.
We hereby approve and consent for our Study to be incorporated into, attached to,
and/mentioned in any of Arko Holdings LTD. (hereinafter: "Arko") and the Company
and/or their subsidiaries/affiliates, publications based on any disclosure
requirements that may apply to any such entity by law or any rule or regulation. We
also hereby approve and consent for our valuation study to be relied upon for the
calculation of the value of shares pledged in accordance to the Trust Deed, as
executed by Arko with regard to its Debentures (series H).
In forming our opinion we have relied on sources, which appeared to us as reliable,
and nothing came to our attention, which is likely to indicate the lack of
reasonability of the data we used. We did not independently examine such data and,
therefore, our work does not constitute verification of the correctness, completeness
or accuracy of the data.
We present and comment on the financial projections of the Company, which are
solely the responsibility of its board of managers. Because financial projections and
the assumptions on which they are based relate to the future, actual results and cash
flows may be different from those projected, because events and circumstances
frequently do not occur as expected. The differences may be material.
This report summarizes the findings of our Study. The accompanying report provides
a detailed explanation of our analysis.
It is emphasized that we do not have any personal interest in the Company and our
fee is not conditioned on the results of the opinion.
The Study is being delivered pursuant to, and is subject to the terms of, an
engagement letter dated December 7, 2015 (hereinafter: “Engagement Letter").
Valuation Study - As of December 31, 2015 GPM Investments, LLC iii
Indemnification Details Regarding the Valuation Specialist
If, in a final, un-appealable legal proceeding, we are found liable to pay any amount
to a third party in connection with the services that are the subject of this
Agreement, the Company undertakes to indemnify and reimburse us if the source of
the claim is not willful misconduct, negligence or malice in providing our services as
follows:
In case the conviction shall arise from information provided by the Company, which
we explicitly relied on in performing the valuation study, the Company agrees to
indemnify and reimburse 100% of any amount which we shall be required to bear.
Otherwise, the Company agrees to indemnify and reimburse us for amounts paid by
us which are exceeding 3 times our fee.
The foregoing limitation will apply regardless of the form of action, whether contract
or tort, including without limitation, negligence, except that such limitation shall not
apply in the case of gross negligence, revenue, data, use of other commercial injury,
or any special, incidental, indirect or consequential damages, suffered by the
Company or any third party, whether or not BDO has been advised of the possibility
of such loss, injury, damages or third party claim, under any cause of action arising
out of or relating to this Agreement.
The Company is solely responsible for the payment of all fees, expenses,
indemnification or other amounts due under or in connection with this engagement.
BDO Consulting and Management Ltd. were founded by the partners of BDO
Certified Public Accountants.
BDO Consulting and Management is part of the international BDO network, provides a
full range of business services required for national and international businesses in
any sector. Our company has vast experience in the following fields: business
valuations, financial and tax due diligence, goodwill and intangible assets valuations,
financial analyses, business plans, project finance PFI/PPP advisory, M&A,
investment banking and more.
Moti Dattelkramer, CPA, CPA/MBA, Partner, Head of Corporate Finance of BDO
Consulting Group.
Current role - In his current position Moti manages a team which performs business
plans, business valuations, economic consulting, PPA, impairment, employee stock
option valuation and budget building for a wide range of public and private
companies.
Career and employment – Moti is qualified as a Certified Public Accountant. Moti
holds bachelor degree in Economics and computer science from Bar Ilan University
and M.B.A in finance from Bar Ilan University.
Valuation Study - As of December 31, 2015 GPM Investments, LLC iv
Details Regarding the Valuation Specialist (continued)
Moti’s recent projects include:
Delek Group – PPA and valuation studies;
Sonol – Impairment studies;
Super Gas - Impairment studies;
Given Imaging - Valuation studies, impairment studies and valuations of financial
instruments;
One1- Variety of valuations, PPAs and impairment tests for the company and its
subsidiaries;
XTL Biopharmaceuticals – In Process Research and Development (IPR&D)
impairment examination (IAS36 & IAS38), Goodwill impairment examination
(IAS36).
Gazit-Globe - Investment in associate impairment examination (IAS28 & IAS36).
PPA study following the step-by-step method (IAS28), PPA study following the
business combination method (IFRS 3).
Valuation Study - As of December 31, 2015 GPM Investments, LLC v
Sources of information Results
The principal sources of information used in performing our Study include:
The Company's audited financial statements for 2013-2015;
Management's forecast for 2016-2019, including, number of gallons, gross
profit, gross profit per gallon, credit card expenses, operating expenses,
etc.;
Various documents and reports received from Management;
Publicly available information.
Conversations held with Management:
Mr. Arie Kotler, CEO;
Mr. Eyal Nuchamovitz, Executive VP;
Mr. Don Bassell, CFO;
Ms. Ashleigh McDermott, Vice President – Financial Reporting;
The following is the Company's equity value:
The Company's equity's value, as of December 31, 2015, was determined to be
USD 410,414 thousands.
Respectfully submitted,
BDO Ziv Haft
Consulting & Management Ltd.
# Approach Method Equity's Value
1 DCF Method 393,278
2 DCF Method, Post Private Issuance 404,300
3 Public Company Method (EBITDA Ratios) 433,666
Average 410,414
Valuation Study - As of December 31, 2015 GPM Investments, LLC vi
Table of Contents
Company Overview 1
Market Overview 14
Financial Statements Analysis 27
Valuation Methodology 39
Valuation – DCF Method 44
Valuation – DCF Method, Post Private Issuance 64
Valuation - EBITDA Ratios 71
Valuation - Summary 73
Appendixes 75
Section 1 - Company Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Section 1
Company Overview
Section 1 - Company Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Company Overview
General Overview
GPM was formed on June 12, 2002, as a limited liability company in accordance
with the laws of the State of Delaware, United States. The Company and its
subsidiaries (the “Group”) operate a chain of convenience stores selling
merchandise and fuel (which includes motor fuels and kerosene) in several
locations that include the Mid-Atlantic, Southeastern, Midwestern and Northeastern
United States. Stores are located in states including Connecticut, Delaware,
Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan, North Carolina and Virginia.
In addition, the Company has a fuel distribution division that supplies petroleum to
convenience stores and petroleum stations operated by external operators.
As of the valuation date, GPM is 75% owned by Arko Convenience Stores, LLC
(“ACS, LLC”) and 25% owned by GPM Holdings Inc. (“Holdings”). ACS, LLC is wholly
owned by a subsidiary of Arko.
The graph below presents the Company's holding structure:
ARKO Convenience Stores, LLC - a private company registered in the United States,
which is 100% owned by ARKO, through a wholly owned subsidiary and owns 75% of
the issued common membership units and voting rights of the Company and 50% of
the issued New Preferred Member Units of the Company.
GPM Holdings, Inc. – a private company registered in the United States, which owns
25% of the issued common membership units and the voting rights of the Company
and 50% of the issued New Preferred Member Units of the Company.
Section 1 - Company Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Company Overview
General Overview (continued)
The Group operates in two operating segments:
1. Retailing - This segment includes the self-operation of a chain of retail
stores which include convenience stores selling fuel products and other
merchandise to retail customers. At its Group-operated convenience
stores, the Group owns the merchandise and petroleum inventory and
employs the on-site employees.
2. Wholesaling - This segment includes:
a. The supply of petroleum on consignment to independent external
operators as to which the Group is the owner of the petroleum
inventory at the site and is also responsible for the pricing of the
petroleum to the consumer. The Group’s petroleum is sold to the
final consumer, while the gross profit is shared with the external
operators.
b. The supplying of petroleum to independent convenience stores
and gas stations operated by external operators who, in this
segment, are the final customers of the Group.
The following table summarizes the number of sites and the operating channels in
the two fields of activity, as of December 31, 2015:
Source: Management.
In the ordinary course of business, stores may switch operating channels. For
instance, a self-operated store may become a site operated by external operators
and vice-versa. This is typically done based upon the economic status of the store
and the conditions in the market that exist at each site. These changes are relatively
infrequent and occur on an occasional basis at the Groups sites each year.
Sites that are
owned by GPM
Sites that are
leased by GPM
Sites that are not
controlled by GPMTotal
The retail sales field
Self-operating 60 606 – 666
The wholesale sales field
Outside operators – under consignment 1 38 3 42
Outside operators – supply of petroleum 5 20 44 69
Total 66 664 47 777
Section 1 - Company Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Company Overview
General Overview - The Company's Organizational Chart (continued)
GPM's Richmond, Virginia headquarters are responsible for all of GPM's fields of activity. The organization is comprised of multiple departments, which were, as of December 31,
2015, managed by GPM’s CEO, COO and Vice Presidents, as set forth in the following chart:
President & CEO
Senior Vice President of Human
ResourcesGeneral Counsel
Executive Vice President
Chief Operating Officer
Senior Vice President of Marketing
SVP Operations
Div VP Operations
NE Division
Div VP Operations
MW Division
Div VP Operations
SE Division
Chief Financial Officer
Senior Vice President of Information Technology
Section 1 - Company Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Company Overview
General Overview - Recent Acquisitions
During the past few years, the Company grew significantly through the acqusition of several companies. Below are the Company's acquisitions that have been executed since 2013,
according to their closing date:
There are two transactions that were closed in Q1 2016:
Fuel USA Acquisition – Pursuant to an agreement dated January 14, 2016 between the Company and its subsidiary, GPM Apple, LLC and an unrelated third-party (“Apple
Seller”), the Group purchased:
i. In the retail field 42 self-operated stores; and
ii. In the wholesale field 20 dealer operated stores and petroleum supply contracts, in the Southeast US.
iii. All for consideration of approximately USD 5.4 million plus approximately USD 5.4 million (subject to adjustments) for the value of inventory and cash in the stores,
this was paid in cash at the closing dates. Apple Seller contributed its rights to its existing petroleum supply contracts to GPM Petroleum LP ("GPMP") in exchange for
limited partnership units having a value of approximately USD 16.9 million. The closing occurred in two phases with the final closing completed on March 8, 2016.
Gas Mart Acquisition – On January 22, 2016, the Company entered into an asset purchase agreement with four non-related third parties for the acquisition of up to 21
convenience stores, including the ownership of the real estate at such sites, in Illinois, Iowa and Nebraska. The consideration agreed to be approximately was USD 6.1 million
plus the value of cash and inventory at the stores plus USD 0.4 million in expenses related to the legal proceedings. The purchase agreement was approved by the bankruptcy
court on February 8, 2016. The closings took place with regard to 15 convenience stores to be operated by the Company including the fee ownership of the real estate. The
closings of the purchased stores occurred in multiples phases, all of which were completed by February 23, 2016. At each closing, GPMP purchased the right to supply
petroleum to the acquired sites in exchange for the Company’s subsidiary operating such locations entering into a petroleum supply agreement with GPMP.
Acquisition Date of Acquisition
Number of
Convenience
Stores Acquired
Virginia Acquisition August 1, 2013 5
Southeast Acquisition August 6, 2013 263
Carolinas Acquisition February 3, 2015 8
Road Ranger Acquisition March 20, 2015 42
Midwest Acquisition June 3, 2015 161
Section 1 - Company Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Company Overview
General Overview (continued)
Targets, business strategy and expectations in respect of developments in the
coming year
GPM's business strategy is based on growth in profitability that is based on
expansion of the operations through additional acquisitions, in all geographic areas
in which GPM is active. As part of this strategy, GPM intends to acquire additional
convenience stores selling gas, both in the areas in which GPM currently operates
and also in additional regions where GPM can leverage its head office management
operations, cost structure and economies of scale. As described, GPM’s strategy is
of a gradual geographic growth by expanding to new areas that are close to areas
where it already operates.
As part of the above strategy, GPM plans to expand the business of GPMP, and as
part of this, utilize the USD 110 million credit line that can in certain terms be
raised to USD 220 million, and GPM plans to continue to pursue the possibility of a
public offering of limited partnership units of GPMP.
Within the framework of the main targets that GPM has set for itself, it continues
to develop and to enhance the existing sites through capital improvements while
focusing on increasing operational efficiency by means of the employment of
experienced manpower, the improvement of training processes for employees, the
automation of the processes, the expansion of the food offerings in the
convenience stores and the reduction of expenses.
As of December 31, 2015, GPM is analyzing numerous potential capital investments
that will improve the appearance of its stores and their operation, which includes,
among others, the relamping of the sites by using more energy efficient lighting
fixtures and the introduction of additional national branded food operations to GPM’s
stores.
The food and beverages field in convenience stores is typified by relatively high
profit rates and the possibility for high levels of growth. Accordingly, GPM intends to
continue to develop and to focus on the development of that field, including by
means of the entry of new products into the convenience stores, the changing of the
mix of products that are sold in the convenience stores and the development of the
fast food field, both by itself and also by means of franchises from well-known chains
in the fast food field.
Section 1 - Company Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Company Overview
Retail Operating Segment
Products and Services
The main products and services in the field of retail activity include:
The marketing of various types and brands of petroleum, including various
sorts of gasoline, diesel and gasoline mixed with ethanol (E-10 products);
The sale of various retail products, including the sale of tobacco products
such as cigarettes, grocery products, drinks and snacks manufactured by
leading brands in the US, beer and wine, fountain soft drinks and coffee;
Food services, including quick service restaurants (at some of the sites);
The sale of lottery tickets, phone cards and stored value cards;
Cash withdrawal services (ATM), money transfer services, and sale of
money orders (at most of the sites);
Car washes, vacuum services and air for tires (at a few of the sites).
The services and the products in this field are intended for passerby travelers and
are sold at convenience stores selling gas that are open for 16-24 hours a day,
seven days a week.
Customers
GPM does not have dependency on any specific customer as a result of the fact that
most of its activity at the self-operated sites is dependent upon private consumers.
Section 1 - Company Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Company Overview
Retail Operating Segment (continued)
Petroleum Suppliers
The Group has entered into commitments under an array of agreements with its
main petroleum suppliers. The Group generally enters into petroleum supply
agreements for periods ranging from three to ten years and its current supply
agreements (the “Petroleum Supply Agreements”) with its main petroleum
suppliers are as follows:
Valero Marketing and Supply Company (“Valero”) – Effective until
December 31, 2021;
BP Products North America Inc. (“BP”) – Effective until December 31,
2019;
ExxonMobil Oil Corporation (“ExxonMobil”) – Effective until August 31,
2020;
Marathon Petroleum Company LLC (“Marathon”) – Effective until July 31,
2018.
Within the framework of the Petroleum Supply Agreements, the Group has made a
commitment to purchase a minimum quantity of petroleum from each supplier.
The Group has undertaken to sell at least three grades of branded petroleum at
most of its sites. The Petroleum Supply Agreements state that the petroleum
purchase prices will be based on the daily rack prices.
In addition, the Group enters into incentive agreements (“Incentive Agreements”)
with its petroleum suppliers for periods which generally are the same duration as,
or exceed, those in the Petroleum Supply Agreements.
The Incentive Agreements provide that the Group may receive incentives for
branding and upgrades as well as other benefits from each supplier subject to
compliance with terms that were set in the Incentive Agreements.
Merchandise Suppliers
McLane:
Most of the merchandise products in the Group’s convenience stores which the Group
owned prior to the Southeast Acquisition, including all cigarettes and tobacco
products and most of the grocery products are supplied to the Group's convenience
stores by McLane Company, Inc. (“McLane”). On November 3, 2012, the Company
and McLane entered into a three year agreement originally terminating on November
3, 2015. In December 2015, the term of the agreement was retroactively extended
until November 3, 2018.
Core-Mark:
In 2015, most of the merchandise products for the Southeast Operations including all
cigarettes and tobacco products and most of the grocery products were supplied to
the Group’s convenience stores by Core-Mark (the parent company of what was
formerly known as Davenport) through an agreement between Core-Mark and one of
the Company’s subsidiaries. Commencing in 2016, all of the Group’s convenience
stores not supplied by McLane (excluding future acquisitions) will be supplied by
Core-Mark pursuant to two parallel agreements for a period from January 1, 2016
through January 31, 2019.
Section 1 - Company Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Company Overview
Retail Operating Segment (continued)
The table below details the total and the percentage of GPM's gross purchases in
the retail operations from its retail suppliers in relation to the overall amount of
GPM's purchases for the twelve month period ended on December 31, 2015 (in USD
thousands):
Petroleum
Merchandise
Competition
In the retail field of activities, GPM operates in a competitive market, which includes
chains that operate similar convenience stores selling petroleum with similar
operations to those operated by GPM. Purchases are often influenced based on a
passerby's need to stop for gas or take a break from driving and brand loyalty does
not have a major influence. The market is similarly competitive in all markets in
which GPM operates.
According to GPM’s Management, main competitors are convenience store chains
that include but are not limited to: 7-Eleven, Royal Farms, Wawa, Quik Trip,
Sheetz, Murphy Express, Speedway, Circle K, etc.
SupplierTotal Purchases
2015%
Valero 317,600 38%
Marathon 154,262 19%
BP 128,669 16%
Exxon 92,275 11%
Other Suppliers 130,920 16%
Total 823,726
SupplierTotal Purchases
2015%
McLane 124,357 20%
Core-Mark 115,795 18%
Other Suppliers 396,705 62%
636,857
Section 1 - Company Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Company Overview
Retail Operating Segment (continued)
Seasonality
The weather, including daylight, temperature and precipitation, affects
the volume of activity in the retail operating segment, which is
concentrated in the Mid-Atlantic, Southeastern, Midwestern and
Northeastern United States. Seasonality affects the entire industry, not
just GPM. Accordingly, in the first and last quarters of the calendar year,
there is an observed decline in business and sales volume.
During the winter seasons (first and fourth quarters) when it is cold and
dark earlier in the day, and when there are snow storms or there is heavy
rain, customers’ tendency to leave their homes is reduced. As a result of
this, sales of convenience store products, petroleum and ancillary services
decrease.
During the course of the summer, the autumn and part of the spring,
when it is light later in the day and it is warmer, the volume of activity
increases as a result of greater customer traffic.
Section 1 - Company Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Company Overview
Wholesale Operating Segment
Products and Services
The main products and services in the field of wholesale activity include:
Petroleum Supplying – supplies various types of fuel to convenience stores
and gas stations that are operated by external operators, including various
grades of gas, gas that is mixed with ethanol (E10) and diesel;
Leases - GPM leases real estate property to external operators for the
purpose of the operation of gas stations and convenience stores, which is
in addition to the supply of petroleum to these stations.
Customers
The Group’s customers in this operating segment are the external operators, with
whom, in most cases, the Group has long-term supply agreements. GPM is not reliant
on any specific customer in this operating segment.
In this field, the Group purchases petroleum from its traditional fuel suppliers (such
as Valero, BP) and in most cases also arranges for a third party trucking company to
pick up the petroleum at the applicable terminals, which are not owned by GPM, and
deliver the petroleum to external operators sites. It should be noted that GPM does
not store petroleum at any warehouse.
In most of the agreements, the external operators have agreements with the Group
to operate the gas stations in accordance with the provisions that are set in the
dealer agreement, such as, branding of the station in accordance with the supplier
that has been selected by GPM, preservation of the environment rules, and the
cleanliness and maintenance of the site. The Group has the right to cancel these
agreements, in any case in which the external operators do not pay on a timely basis
or comply with the provisions that have been set in the dealer agreements.
Section 1 - Company Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Company Overview
Wholesale Operating Segment (continued)
Customers (continued)
There are 2 types of agreements under which GPM supplies fuel to the locations
operated by these external operators:
Consignment Arrangements - In most cases, GPM’s commitments with the
external operators at the consignment sites are for a period of up to ten
years, which may be a fixed period or a shorter period with an option or
series of options, where at the end of the term, in accordance with the
wishes of the parties, the parties may enter into a commitment under a
new agreement. At the consignment sites, GPM sets the price to the retail
customers based upon fuel costs, competition and volume trends, goals
and supplier commitments.
Supply Arrangements - In most of the agreements with the external
operators which are not on consignment sites, GPM’s commitments with
the external operators are for long-term periods, which can be extended
by mutual agreement. The external operators typically pay for the
petroleum within three days of receipt. In most of the agreements, the
external operators provide personal guarantees and/or monetary
collateral at the time of the commitment, including a security deposit.
Suppliers
The table below details the total and the percentage of GPM's gross purchases from
its main wholesale petroleum suppliers in relation to the overall amount of GPM's
purchases for the twelve month period ended on December 31, 2015 (in USD
thousands):
SupplierTotal Purchases
2015%
Valero 47,020 41%
Marathon 47,773 41%
Exxon 10,048 9%
BP 3,727 3%
Other Suppliers 6,640 6%
Total 115,208
Section 1 - Company Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Company Overview
Wholesale Operating Segment (continued)
Competition
At sites that are controlled by GPM, GPM does not have any real
competition, because the rental agreement through which GPM enters
into a commitment with the external operator is conditional upon a long-
term contract for the supply of petroleum;
At the sites that are not controlled by GPM, there is competition from
other marketers of petroleum, which competes in the regions in which
GPM operates. As part of the way in which it copes with the competition
in the field, GPM offers the external operators competitive pricing and the
possibility of an investment in equipment and in branding, within the
framework of the gas supply agreements, which it has with its main
suppliers, Valero and BP and with other suppliers of gas, such as Shell,
Marathon and ExxonMobil.
Section 2 - Market Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Section 2
Market Overview
Section 2 - Market Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Market Overview
The U.S Economy1
Real GDP has increased by 0.7% at an annual rate (percent change from preceding
quarter) in Q4 2015 according to estimations of the national income and product
accounts. In Q3 2015, the real GDP has increased by 2% (percent change from
preceding quarter). For 2015, real GDP increased 2.4%, the same rate as in 2014.
The deceleration in real GDP in the fourth quarter primarily reflected a deceleration
in consumer spending and downturns in nonresidential fixed investment, in exports,
and in state and local government spending that were partly offset by a smaller
decrease in private inventory investment, a deceleration in imports, and an
acceleration in federal government spending
Prices of goods and services purchased by U.S. residents increased by 0.2% in Q4 2015
after increasing 1.3% in Q3 2015. Energy prices turned significantly down in Q4 2015,
and food prices haven’t change. Excluding food and energy, gross domestic purchases
prices increased 0.9% in Q4 2015 after increasing 1.3% in Q3 2015.
Real disposable personal income (DPI) increased by 0.8% in Q4 2015 after increasing
3.5% in Q3 2015. DPI increased 3.7% in 2015, compared with an increase of 4.2% in
2014.
The personal saving rate, personal saving as a percentage of current-dollar DPI, was
4.7% in Q4 2015; in Q3 2015, the rate was the same.
In 2016, the expected GDP growth is 1.5%, 2%, 2.8% and 2.66% in Q1, Q2, Q3 and Q4
2016, respectively.
1 U.S. Bureau of Economics (BEA)- November 2015
% change (adjusted annual rate)
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Gross domestic product growth rate -0.9% 4.6% 4.3% 2.1% 0.6% 3.9% 2.0% 0.7%
Purchases, by type:
Gross domestic purchases 0.5 4.7 3.8 2.9 2.5 3.6 2.2 2.4
Personal consumption expenditures 1.3 3.8 3.5 4.3 1.8 3.6 3.0 2.2
Nonresidential fixed investment 8.3 4.4 9.0 0.7 1.6 4.1 2.4 (1.8)
Residential investment (2.8) 10.4 3.4 10.0 10.1 9.3 7.3 8.1
Exports of goods and services (6.7) 9.8 1.8 5.4 (6.0) 5.1 0.9 (2.5)
Imports of goods and services 2.8 9.6 (0.8) 10.3 7.1 3.0 2.1 1.1
Government consumption – 1.2 1.8 (1.4) (0.1) 2.6 1.7 0.7
Prices of:
Gross domestic purchases 1.6 1.9 1.5 –0.1 (1.6) 1.5 1.3 0.2
Personal consumption expenditures 1.6 2.1 1.2 (0.4) (1.9) 2.2 1.3 0.1
Gross domestic product 1.5 2.2 1.6 0.1 0.1 2.1 1.3 0.2
20152014
Section 2 - Market Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Market Overview
The U.S Economy (Continued)
The graph below presents the historical GDP growth rate in the U.S from 2014-2015
for each quarter:
The table below presents the GDP per capita in the U.S. during the past quarters in
constant 2009 (USD):
(Source: "The World Bank")
The table below presents the unemployment rate in the U.S in the past year:
(Source: "The World Bank")
The unemployment rate has dramatically decreased in the past 12 months from 5.7%
in January 2014 to 5% in December 2015.
-0.9%
4.6% 4.3%
2.1%
0.6%
3.9%
2.0% 0.7%
-5%
0%
5%
Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015Q2 2015 Q3 2015 Q4 2015
Gross domestic product growth…
49,905 49,874
50,298 50,457 50,433
50,830 50,973 50,993
49,200
49,400
49,600
49,800
50,000
50,200
50,400
50,600
50,800
51,000
51,200
Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015
GDP Per Capita
5.7%
5.5% 5.5% 5.4%
5.5%
5.3% 5.3%
5.1% 5.1% 5.0% 5.0% 5.0%
4.6%
4.8%
5.0%
5.2%
5.4%
5.6%
5.8%
Unemployment rate
Section 2 - Market Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Market Overview
Economic Factors Influencing Main States of Operation
As of the valuation date, GPM operates in several states throughout the U.S. The
states of its retail operation are: Connecticut, Delaware, Illinois, Indiana, Iowa,
Kentucky, Maryland, Michigan, North Carolina, Ohio, Pennsylvania, South Carolina,
Tennessee and Virginia.
Hereunder presents the unemployment rate as December 31, 2015 and the Gross
State Product (GSP) for Q3 2015, by states:
(Sources: "U.S. Bureau of Census")
The table below presents the unemployment rate by states (USD million):
Country Unemployment
Rate
Q3 2015 GSP
(M USD)
Connecticut 5.4% 262,212
Delaware 4.9% 66,695
Maryland 5.0% 365,209
North Carolina 5.6% 509,718
Tennessee 5.6% 310,276
Virginia 4.2% 480,876
Illinois 6.1% 771,896
Iowa 3.5% 171,532
South Carolina 5.5% 199,256
Indiana 4.6% 331,126
Michigan 5.1% 468,029
Ohio 4.8% 599,093
Kentucky 5.7% 194,578
5.4%
4.9% 5.0%
5.6% 5.6%
4.2%
6.1%
3.5%
5.5%
4.6%
5.1%
4.8%
5.7%
–
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Section 2 - Market Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
18
Market Overview
Economic Factors Influencing Main States of Operation (continued)
The table below presents information regarding the actual and the estimated
population in 2014 and 2015, respectively by state:
(Sources: "U.S. Bureau of Census", "U.S. Bureau of Economic", BDO analysis)
Country (USD)
Population
2014
Estimated
Population
2015
Population
Annual
Growth Rate
Connecticut 3,594,762 3,590,886 -0.11%
Delaware 935,968 945,934 1.06%
Maryland 5,975,346 6,006,401 0.52%
North Carolina 9,940,387 10,042,802 1.03%
Tennessee 6,547,779 6,600,299 0.80%
Virginia 8,328,098 8,382,993 0.66%
Illinois 12,882,189 12,859,995 -0.17%
Iowa 3,109,481 3,123,899 0.46%
South Carolina 4,829,160 4,896,146 1.39%
Indiana 6,597,880 6,619,680 0.33%
Michigan 9,916,306 9,922,576 0.06%
Ohio 11,596,998 11,613,423 0.14%
Kentucky 4,412,617 4,425,092 0.28%
Average 6,820,536 6,848,471 0.5%
Section 2 - Market Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
19
Market Overview
Gasoline Market Structure and Key Developments2
The future path of crude oil and natural gas prices can vary substantially, depending
on assumptions about the size of global and domestic resources, demand for
petroleum products and natural gas (particularly in non-OECD countries), levels of
production, and supplies of other fuels.
Growth in U.S. energy production—led by crude oil and natural gas—and only modest
growth in demand reduces U.S. reliance on imported energy supplies. Natural gas is
the dominant U.S. energy export, while liquid fuels continue to be imported.
Through 2020, strong growth in domestic crude oil production from tight formations
leads to a decline in net petroleum imports and growth in net petroleum product
exports. In the high oil and gas resource case, increased crude production before
2020 results in increased processed condensate exports. Slowing growth in domestic
production after 2020 is offset by increased vehicle fuel economy standards that limit
growth in domestic demand. The net import share of crude oil and petroleum
products supplied falls from 33% of total supply in 2013 to 17% of total supply in 2040
in the reference case. The United States becomes a net exporter of petroleum and
other liquids after 2020 in the High Oil Price and High Oil and Gas Resource cases
because of greater U.S. crude oil production.
The United States transitions from being a modest net importer of natural gas to a
net exporter by 2017. U.S. export growth continues after 2017, with net exports in
2040 ranging from 3.0 trillion cubic feet (Tcf) in the Low Oil Price case to 13.1 Tcf in
the High Oil and Gas Resource case.
Growth in crude oil and dry natural gas production varies significantly across oil and
natural gas supply regions and cases, forcing shifts in crude oil and natural gas flows
between U.S. regions, and requiring investment in or realignment of pipelines and
other midstream infrastructure.
U.S. energy consumption is expected to grow at a modest rate in the next years
averaging 0.3% a year from 2013 through 2040. A marginal decrease in transportation
sector energy consumption contrasts with growth in most other sectors. Declines in
energy consumption tend to result from the adoption of more energy-efficient
technologies and existing policies that promote increased energy efficiency.
2 EIA- Annual Energy Outlook- 2015
Section 2 - Market Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
20
Market Overview
Gasoline Market Structure and Key Developments (continued)
The following chart of the EIA represents recent annual average consumption of
transportation fuel (data and forecast, million barrels per day):
As can be seen from the chart above, 2007 is perceived by EIA as the historic turning
point of motor-fuels consumption. As mentioned earlier, the EIA projects that higher
efficiency will overcome the increase in miles traveled and will lead to substantial
long-term decrease in fuels consumption. This assumption is mainly relevant to
western states in the U.S.
The following table of the EIA represents history and projections for motor gasoline
and diesel fuel consumption (data and forecast, gasoline in blue, million barrels per
day):
As can be seen from the chart above, gasoline's market share is predicted to fall,
comparing to a predicted rise in diesel fuel.
10
12
14
2
3
4
5
6
7
8
9
10
Section 2 - Market Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
21
Market Overview
Gasoline Market Structure and Key Developments 3 (Continued)
Electric Cars (E-Cars) Consumption
A large part of the gasoline consumption is attributed to private cars. In the past
years, E-Cars (both hybrid and plug-in cars) have become popular.
The table below presents the sales of electric and hybrid cars ("E-Cars") during the
years 2007-2015 in the U.S:
Betweem 2011-2013, the share of electric and hybrid cars constantly raising. In 2014
and 2015 we can see that the total elctric drive vechles have decreased.
The following table presents the number of hybrid and plug in cars that were sold in
the past years and the market share of E-Cars out of total car sales in the years 2009-
2015:
In the past 2 years, hybrid car sales have decreased, while the plugs in cars sales
have increased dramatically. The market share of E-Cars has decreased from 3.81% in
2013 to 2.87% in 2015.
3 Electric Drive transportation Association
Type 2009 2010 2011 2012 2013 2014 2015
Hybrid 290,292 274,210 266,329 434,645 495,530 451,702 384,404
Plug in – 326 17,735 52,835 96,702 118,773 114,022
Total Vehicles Sales 10,429,014 11,588,783 12,734,356 14,439,684 15,531,609 16,435,286 17,386,331
E-Drive Market Share 2.78% 2.37% 2.23% 3.38% 3.81% 3.47% 2.87%
2.78%
2.37%2.23%
3.38%
3.81%
3.47%
2.87%
0%
1%
1%
2%
2%
3%
3%
4%
4%
5%
–
100,000
200,000
300,000
400,000
500,000
600,000
Hybrid Plug in E-Drive Market Share
Section 2 - Market Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
22
Market Overview
Gasoline Market Structure and Key Developments (Continued) Convenience Stores Market Structure and Key Developments4
The chart below presents the motor gasoline price (including federal, state and local
tax) for regular graded gasoline--actual and forecasted, in 2013 constant USD
(Source: EIA- Annual Energy Outlook 2015):
As can be seen above, in Q1 2016, the gasoline priced is forecasted to fall to USD
1.85 per gallon. The price will stabilize in Q2 2016. In Q3 2016 the gasoline price is
expected to increase to USD 2.10 per gallon and decrease by Q4 2016 to USD 2.00 per
gallon.
Convenience Stores ("C-stores") have greatly benefited from the growth of the overall
retail industry and continuous surge in oil prices.
C-Stores are of various sizes ranging from 800-5,000 square-feet (as of Nielsen
Convenience Industry Store Count) and offer a variety of products and services like:
gasoline, groceries products, diesel, tobacco products, meals and snacks, lottery
sales, ATMs, money orders etc. The average convenience store is 2,744 square feet.
New stores are bigger, with 3,590 square feet, with about 2,582 square feet of sales
area and about 1,008 square feet of non-sales area.
The U.S. convenience store count increased to a record of 154,195 stores as of
December 31, 2015, a 0.9% increase from the year prior; overall, 80.7% of
convenience stores (124,374 totals) sell motor fuels.
Convenience stores account for over 80% of the gasoline purchased in the U.S.
Foodservice, salty snacks and packaged beverages helped propel the U.S.
convenience store industry to a record sales year in 2014.
Buoyed in part by low fuel prices, the industry posted record in-store sales of USD
214.9 billion in 2014. This figure represented an increase of 4.6% over 2013.
4 NACS/Nielsen Convenience Industry Store Count
3.40
3.68 3.50
2.88
2.27
2.67 2.60
2.10
1.85 1.90
2.10 2.00
1.8
2.0
2.2
2.4
2.6
2.8
3.0
3.2
3.4
3.6
3.8
Q12014
Q22014
Q32014
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Q42016
Motor Gasoline prices- Actual and Forecast
Q1 2014 Q4 2016Forecast Actual
Section 2 - Market Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
23
Market Overview
Convenience Stores Market Structure and Key Developments (Continued)
According to IBIS World Industry's analyst Hester Jeon, while gasoline constitutes the
majority of sales, store owners are increasingly relying on convenience store sales
because in-store products are more profitable than gasoline.
The convenience store industry is a destination for food and refreshments. With
falling revenues from fuels and tobacco products, foodservice sales are increasingly
becoming convenience stores’ most profitable category.
A detailed breakdown of C-stores revenue by product is as follows:
The convenience retailing industry continues to be dominated by single-store
operators, which in 2015 account for 63.1% of all convenience stores (97,359 stores
total).
This suggests that the increase in single-store ownership occurred as a result of larger
industry participants vacating some of the smaller or less desirable markets. These
locations, in most cases, did not appeal to distributors, since they were too
geographically removed for efficient route inclusion or lacked the demographic
statistics or physical location or structure to be considered by larger acquirers.
69%
11%
6% 7%
7%
motor fuels Tobacco
Foodservice Packaged beverages and Beer
other
Section 2 - Market Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
24
Market Overview
Industry Risk Factors- C-Stores
By far, C-stores have the most locations nationwide, but over the past five years,
others in the small box category are increasing store count at a faster clip. Dollar
stores added 19% more stores and drug stores added 6% more, compared to 2% in the
C-store category. This trend is likely to continue because, in addition to competition
with other retail formats, four of the leading reasons people stop at C-Stores are
under pressure include:
Highly competitive industry
The convenience store and retail fuel industries are highly competitive and
characterized by ease of entry and constant change in the number and type of
retailers offering the products and services found in stores. They compete with many
other convenience store chains, gasoline stations, supermarkets, drugstores, discount
stores, club stores, fast food outlets, and mass merchants. In recent years, several
nontraditional retailers such as supermarkets, club stores, and mass merchants have
affected the convenience store industry by entering the fuel retail business. These
nontraditional fuel retailers have obtained a significant share of the motor fuels
market, and their market share is expected to grow.
The volatility of wholesale petroleum costs
Crude oil and domestic wholesale petroleum markets are marked by significant
volatility. General political conditions, acts of war or terrorism, and instability in oil
producing regions, particularly in the Middle East and South America, can
significantly affect crude oil supplies and wholesale petroleum costs.
In addition, the supply of fuel and the wholesale purchase costs could be adversely
affected in the event of a shortage, which could result from, among other things,
lack of capacity at United States oil refineries or from the absence of fuel contracts
that guarantee an uninterrupted unlimited supply of gasoline. Significant increases
and volatility in wholesale petroleum costs have resulted and could in the future
result in significant increases in the retail price of petroleum products and in lower
gasoline average margin per gallon. Increases in the retail price of petroleum
products have resulted and could in the future adversely affect consumer demand for
fuel. This volatility makes it difficult to predict the impact that future wholesale cost
fluctuations will have on the operating results and financial condition.
Changing consumer preferences for alternative motor fuel and improvements in
fuel efficiency
Technological advancement, regulatory changes, or changes in consumer preferences
toward alternative motor fuels or more fuel-efficient vehicles could reduce demand
for the fuel products. In addition, a shift toward electric, hydrogen, natural gas or
other alternative fuel-powered vehicles could fundamentally change the shopping
habits of the customers or lead to new forms of fueling destinations or new
competitive pressure. New technologies developed to improve the fuel efficiency of
automobiles, or further governmental mandates to improve fuel efficiency, may
result in decreased demand for conventional fuel. Any of these outcomes could
potentially result in fewer customer visits to C-Stores, decreases both in fuel and
general merchandise sales revenue or reduce profit margins.
Section 2 - Market Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
25
Market Overview
Industry Risk Factors- C-Stores (Continued) Competitors- Convenience Stores
Wholesale cost and tax increases relating to tobacco products
Sales of tobacco products have a lion share of the C-Stores revenues. Any significant
increases in wholesale cigarette costs or tax increases on tobacco products may have
a materially adverse effect on unit demand for cigarettes domestically.
The table below presents the top 10 convenience stores chains in U.S.A and Canada (not
including petroleum refining) as of March 2016:
(Source: companies' website).
(*) Couche-Tard, one of the world’s leading convenience retailers, has announced on
March 2015, the creation of a new, global convenience brand, “Circle K”. The new
Circle K brand will replace Couche-Tard’s existing Circle K®, Statoil®, Mac’s® and
Kangaroo Express® branding on stores and service stations across Canada, the USA,
Scandinavia and Central and Eastern Europe.
8,600
14,778
2,822
1,049 1,911
650 1,184 786 550
–
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Section 2 - Market Overview Valuation Study - As of December 31, 2015 GPM Investments, LLC
26
Market Overview
Competitors- Convenience Stores
Chain Name Number Of stores Description
7-Eleven 8,600 7-Eleven Malaysia Holdings Berhad owns, operates, and franchises a chain of convenience stores under
the 7-Eleven brand name.
Alimentation Couche-
Tard (Circle K)
14,778 Couche-Tard, one of the world’s leading convenience retailers, has announced on March 2015, the
creation of a new, global convenience brand, “Circle K”. The new Circle K brand will replace Couche-
Tard’s existing Circle K®, Statoil®, Mac’s® and Kangaroo Express® branding on stores and service
stations across Canada, the USA, Scandinavia and Central and Eastern Europe.
Circle K operates a network of 24-hour convenience stores. The Company offers food products, fast-food
services, lottery tickets, fuel stations, chemicals, lubricant, automated banking machines, and a variety
of other products.
Speedway 2,822 International Speedway Corporation promotes motorsports activities in the United States. The Company
owns and/or operates various facilities, including Daytona International Speedway, Talladega
Superspeedway, Phoenix International Raceway.
CST Brands 1,049 CST Brands, Inc. retails motor fuels and convenience merchandise. The Company provides its services in
the United States and eastern Canada.
Casey's General Stores 1,911 Casey's General Stores, Inc. operates convenience stores in the Midwest. The Company's stores,
operating under the name Casey's General Store, carry a selection of food, beverages, tobacco
products, health and beauty aids, automotive products, and other.
Sunoco Inc. 650 Sunoco LP distributes motor fuel to convenience stores, independent dealers, commercial customers,
and distributers. The Company also operates convenience stores and retail fuel sites. Sunoco is located
in the United States.
Murphy USA Inc. 1,184 Murphy USA Inc. produces and distributes petroleum products. The Company engages in refining,
marketing, and transportation of oil and gas products. Murphy USA provides products and services
worldwide.
Kroger Co. 786 The Kroger Co. operates supermarkets and convenience stores in the United States. The Company also
manufactures and processes some of the foods that its supermarkets sell.
Pilot flying 550 Pilot Flying J Inc. owns and manages convenience stores. The Company offers filling stations, parking, car
washes, payphones, automated teller machines, showers, game rooms and public laundry services. Pilot
Flying J serves customers throughout the U.S.
Section 3 - Financial Statements Analysis Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Section 3
Financial Statements Analysis
Section 3 - Financial Statements Analysis Valuation Study - As of December 31, 2015 GPM Investments, LLC
28
Financial Statements Analysis
Balance Sheets (GPM's IFRS Financials)
The table below presents the Company's audited balance sheets as of December 31, 2014 and 2015 (USD thousands):
USD in thousands USD in thousands
Current assets: 2014 2015 Current liabilities: 2014 2015
Cash and cash equivalents 3,694 7,649 Current Portion of Bank Loans 17,982 34,672
Restricted cash 4,079 8,941 Trade Payables 46,938 70,134
Trade receivables, net 7,919 9,570 Related party loans - current – 44,057
Other current assets 18,051 35,217 Accrued income taxes payable – 396
Inventory 50,212 72,521 Other Current Liabilities 24,952 45,278
Current portion of environmental receivables 1,279 1,008 Current portion of environmental liabilities 2,988 2,783
Current portion of favorable leases 974 1,573 Current portion of unfavorable leases 1,372 3,531
Real estate assets held for sale – 66 Total current liabilities 94,232 200,851
Total current assets 86,208 136,545
Non current liabilities:
Non current assets: Bank Loans 29,843 32,767
Environmental receivables 7,292 7,171 Environmental liabilities 10,137 11,209
Fixed assets 108,354 152,095 Asset retirement obligation 7,341 9,862
Intangible assets 26,391 95,532 Unfavorable leases 11,243 23,721
Favorable leases 4,339 11,298 Deffered tax liabilities – 487
Prepaid expenses 767 1,494 Other liabilities 16,969 43,396
Other long-term assets 8,942 2,421 Total non current liabilities 75,533 121,442
Total non current assets 156,085 270,011
Total liabilities 169,765 322,294
Equity 72,528 84,263
Total assets 242,293 406,556 Total liabilities and equity 242,293 406,556
As of December 31 As of December 31
Section 3 - Financial Statements Analysis Valuation Study - As of December 31, 2015 GPM Investments, LLC
29
Financial Statements Analysis
Balance Sheets – Notes 5
Restricted cash
Usually, the Group's restricted cash balance includes amounts, which the Group
deposited in order to comply with agreements with third parties. As of December 31,
2015, according to Management, the majority of the restricted cash (USD 7.4 million)
included amounts connected to open issues of environmental matters, processing of
money orders and net receipts on account of lottery sales. The remaining USD 1.5
million is used as cash collateral for replacement letters of credit that were required
under the Midwest Acquisition Agreement. A related liability of USD 1.5 million is in
place in "other liabilities" balance.
Trade receivables, net
As of December 31, 2014 and 2015, the majority of the trade receivables are from
credit cards which typically convert to cash shortly after the transaction.
As of December 31, 2014 and 2015, the total trade receivables from the Company's
gross profit amounted to approximately 3.2% and 3%, respectively.
Inventory
The Group's inventory is valued at the lower of cost or net realizable value. The cost
of the inventory includes the purchase costs and other costs incurred in bringing it to
its current location and condition.
The table below presents the Group’s inventory composition as of December 31, 2014
and 2015:
5 Source: Financial statements, Management and BDO analysis.
USD in thousands 2014 2015
Inventory of merchandise in convenience stores 31,428 47,778
% of inventory 62.6% 65.9%
Inventory of petroleum 13,455 15,499
% of inventory 26.8% 21.4%
Inventory of lottery tickets 5,329 9,244
% of inventory 10.6% 12.7%
Inventory 50,212 72,521
Section 3 - Financial Statements Analysis Valuation Study - As of December 31, 2015 GPM Investments, LLC
30
Financial Statements Analysis
Balance Sheets – Notes (continued)
Fixed assets
The table below presents the Group's fixed asset breakdown as of December 31, 2014
and 2015:
Equipment includes fuel equipment, computers and other office equipment. The
majority of the fuel equipment includes dispensers, fuel tanks, fuel station canopy,
etc. The equipment in the convenience stores includes, among other things, cabinets,
counters, shelving, tables, food equipment, etc.
Intangible assets
The table below presents the Group's intangible asset breakdown as of December 31,
2014 and 2015:
The majority of intangible assets were acquired in the context of acquisitions. As of
December 31, 2015, intangible assets were mainly composed of goodwill, which
amounted to approximately 92% of its total intangible assets balance.
USD in thousands 2014 2015
Equipment 66,746 80,410
% of total fixed assets 61.6% 52.9%
Leasehold Improvements, Buildings and Real Estate Assets 41,380 71,310
% of total fixed assets 38.2% 46.9%
Motor Vehicles 228 375
Total 108,354 152,095
USD in thousands 2014 2015
Goodwill 22,104 87,756
% of total fixed assets 83.8% 91.9%
Trade name 2,326 6,195
% of total fixed assets 8.8% 6.5%
Petroleum supply and non competition agreements 1,179 769
% of total fixed assets 4.5% 0.8%
Computer software and licenses 494 584
% of total fixed assets 1.9% 0.6%
Customer relations 288 228
% of total fixed assets 1.1% 0.2%
Total 26,391 95,532
Section 3 - Financial Statements Analysis Valuation Study - As of December 31, 2015 GPM Investments, LLC
31
Financial Statements Analysis
Balance Sheets – Notes (continued)
Other assets
The table below presents the Group's other current asset composition as of December
31, 2014 and 2015:
The table below presents the Groups other long term asset composition as of
December 31, 2014 and 2015:
(1) Vendor receivables represent amounts of incentives that it would receive from its
principle suppliers (please refer to section "Company Overview") which are
conditional upon the volume of fuel and/or merchandise, purchased by the Group in
accordance with its supply agreements.
(2) Prepaid expenses balance as of December 31, 2015 includes approximately USD
4.4 million of prepaid expenses incurred on account of the limited partnership
transactions (please refer to section "EBITDA Ratios").
(3) On August 18, 2014, a new non-interest bearing promissory note in the amount of
USD 7,133 thousands was signed with Holdings. According to the Company's financial
statements, as of December 31, 2015, the fair value of this promissory note is USD
6,973 thousands and its book value is USD 6,994 thousands.
(4) As of December 31, 2015, deposits and other balance are mostly composed from
an environmental indemnification asset that increased as a result of the acquisitions
in the past years.
USD in thousands 2014 2015
Vendor receivables (1) 9,351 13,089
Prepaid expenses (2) 3,139 8,674
Promissory note from Holdings - Current (3) – 6,994
Prepayment for future business acquisitions 2,300 –
Inventory - supplies 1,252 1,859
Other receivables 2,009 4,601
Other current assets 18,051 35,217
USD in thousands 2014 2015
Promissory note from Holdings (3) 6,780 –
Deposits and other (4) 1,148 1,721
Deferred branding expenses 481 319
Notes receivables 533 381
Other long term assets 8,942 2,421
Section 3 - Financial Statements Analysis Valuation Study - As of December 31, 2015 GPM Investments, LLC
32
Financial Statements Analysis
Balance Sheets – Notes (continued)
Environmental assets and liabilities
The operations of the Group are exposed to environmental risks through its
petroleum marketing and distribution operations which includes the storage and sale
of petroleum products. According to the Company, it has invested significant amounts
for the purposes of complying with environmental laws and regulations.
The insurance policies of the Group together with Underground Storage Tank ("UST")
trust funds, in certain states, in which the Group operates, generally cover
environmental pollution subject to the terms of the relevant policies.
The table below summarize the Group's environmental assets and liabilities as of
December 31, 2014 and 2015:
Trade payables
The table below presents the Group’s trade payables' composition as of December 31,
2014 and 2015:
USD in thousands 2014 2015
Current portion of environmental receivables 1,279 1,008
Environmental receivables 7,292 7,171
Total environmental assets 8,571 8,179
Current portion of environmental liabilities (2,988) (2,783)
Environmental liabilities (10,137) (11,209)
Total environmental liabilities (13,125) (13,992)
Total environmental liabilities, net (4,554) (5,813)
USD in thousands 2014 2015
Open account 35,465 50,767
% of trade payables 75.6% 72.4%
State lottery payables 9,334 16,521
% of trade payables 19.9% 23.6%
Accrued liabilities 1,499 1,438
Other 640 1,408
Trade payables 46,938 70,134
Section 3 - Financial Statements Analysis Valuation Study - As of December 31, 2015 GPM Investments, LLC
33
Financial Statements Analysis
Balance Sheets – Notes (continued)
Other liabilities
The table below presents the Group's other current liabilities' composition as of
December 31, 2014 and 2015:
The table below presents the Group’s other noncurrent liabilities' composition as of
December 31, 2014 and 2015:
USD in thousands 2014 2015
Accrued expenses 6,017 13,031
% of other current liabilities 24.1% 28.8%
Taxes payable to government agencies (1) 4,500 11,267
% of other current liabilities 18.0% 24.9%
Liabilities to employees and other liabilities related to
wages and salaries6,443 7,528
Current maturity of M idwest Seller Note (2) – 4,696
Current maturity of financial lease obligations (3) 1,292 2,983
Other 1,039 2,788
Deferred vendor income 1,527 1,315
Notes payable 475 865
Accrued interest 110 805
Current maturity of Southeast Seller Note 3,549 –
Other current liabilities 24,952 45,278
USD in thousands 2014 2015
Midwest Seller Note (2) – 15,927
% of other noncurrent liabilities 0.0% 36.7%
Financing lease liabilities (3) 3,411 11,579
% of other noncurrent liabilities 20.1% 26.7%
Deferred rent 7,445 10,202
Deferred vendor income 4,257 3,698
Deposits from outside operators 1,450 1,439
Other 406 551
Other liabilities 16,969 43,396
Section 3 - Financial Statements Analysis Valuation Study - As of December 31, 2015 GPM Investments, LLC
34
Financial Statements Analysis
Balance Sheets – Notes (continued)
Other liabilities (continued)
(1) Taxes payable to government agencies represents the Group's obligation of
federal and state taxes on fuel, which applies, to the purchase of petroleum (excise
taxes).
(2) Midwest Seller Note is in connection with the Midwest Acquisition, in which the
Sellers accepted a promissory note from the Company. This balance represents part
of the Midwest Acquisition's consideration, secured by the Company. In pursuance to
the Midwest Acquisition, these amounts were recognized partially at fair value.
(3) Financing lease liabilities - The Group leases certain store equipment, office
equipment, automatic tank gauges, store lighting, fuel dispensers, land and buildings
under financing leases.
Section 3 - Financial Statements Analysis Valuation Study - As of December 31, 2015 GPM Investments, LLC
35
Financial Statements Analysis
Statements of Operations
The following are the Company's statements of operations for 2012-2015:
Revenues and Gross Profit
The table below presents the Company's revenues and cost of sales composition for
2014 and 2015:
USD in thousands FY 2012 FY 2013 FY 2014 FY 2015
Revenues 1,132,753 1,378,925 1,771,279 1,741,304
% change 21.7% 28.5% -1.7%
Cost of sales (1,011,750) (1,217,309) (1,525,749) (1,419,325)
% of revenues 89.3% 88.3% 86.1% 81.5%
Gross profit 121,003 161,616 245,530 321,979
% gross profit 10.7% 11.7% 13.9% 18.5%
Selling and marketing expenses (97,191) (140,112) (204,398) (263,324)
% of gross profit 80.3% 86.7% 83.2% 81.8%
General and administrative expenses (13,440) (16,591) (25,948) (31,078)
% of gross profit 11.1% 10.3% 10.6% 9.7%
Other expenses (1,041) (1,638) (1,337) (3,730)
% of gross profit 0.9% 1.0% 0.5% 1.2%
Operating income 9,331 3,275 13,847 23,847
% operating margin 0.8% 0.2% 0.8% 1.4%
Financing income 408 266 76 217
Financing expenses (2,503) (3,188) (4,237) (9,755)
Net income before income taxes 7,236 353 9,686 14,309
% net income margin 0.6% 0.03% 0.5% 0.8%
Income tax expense – – – (2,440)
Comprehensive income 7,236 353 9,686 11,869
% comprehensive income 0.6% 0.03% 0.5% 0.7%
USD in thousands FY 2014 FY 2015
Petroleum
Revenue 1,283,595 1,067,736
Cost of sales (1,191,446) (958,403)
Gross profit 92,149 109,333
% gross profit 7.2% 10.2%
Merchandise
Revenue 464,812 645,328
Cost of sales (332,443) (458,605)
Gross profit 132,369 186,723
% gross profit 28.5% 28.9%
Other Revenue 22,872 28,240
Changes in inventory of petroleum, merchandise (1,860) (2,317)
Total Gross profit 245,530 321,979
% gross profit 13.9% 18.5%
Section 3 - Financial Statements Analysis Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Financial Statements Analysis
Statements of Operations (continued)
Revenues and Gross Profit (continued)
The cost of the purchase of petroleum is presented after deducting federal and state
taxes on fuel which applies to the purchase of petroleum (excise taxes) in the
amount of USD 170.1 million and USD 225.7 million, respectively, for the twelve
month period ended December 2014 and 2015, respectively.
In December 2015, agreements were signed between the Group and a fuel supplier
effective retroactively to August 1, 2015, which resulted in a reduction to cost of
sales of approximately USD 1 million for the year ended December 31, 2015.
The table below presents the Company's revenue per operating segment for the 12
month period ended on December 31, 2015:
The Company's main revenues are from petroleum, which for the 12 month period
ended on December 31, 2015, amounted to approximately USD 1,067 million and
accounted to 61% of the total Company's revenues.
In addition, the Group operates mainly in the retail operating segment, and for the
12 month period ended on December 31, 2015, the Group's revenues from this
operating segment amounted to approximately 93% of its total revenues.
USD in thousands Retail Wholesale Other Total
Petroleum revenues 942,060 125,676 – 1,067,736
% of revenues 54.1% 7.2% 0.0% 61.3%
Merchandise revenues 645,328 – – 645,328
% of revenues 37.1% 0.0% 0.0% 37.1%
Other revenues, net 23,949 3,505 786 28,240
% of revenues 1.4% 0.2% 0.0% 1.6%
Total Revenues 1,611,337 129,181 786 1,741,304
% of total revenues 92.5% 7.4% 0.0% 100.0%
Section 3 - Financial Statements Analysis Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Financial Statements Analysis
Statements of Operations (continued)
Revenues and Gross Profit (continued)
The table below presents the Group's petroleum gallons that were sold during 2012-
2015 (in thousands):
The Group’s main petroleum gallons were sold under its retail operating segment. It
can be noticed that the number of gallons sold through its retail operating segment
for the 12 month period ended on December 31, 2015, increased approximately by
31% compared with the same period last year, due to the acquisitions made during
2015 (please refer to "Company Overview" section).
Operating Profit
The tables below present the Company's operating expense composition for 2012-
2015:
Selling and Marketing Expenses ("S&M Expenses")
In thousands 2012 2013 2014 2015
Retail 220,771 284,997 380,854 500,546
% change 29.1% 33.6% 31.4%
% from total 77.6% 81.2% 84.7% 88.1%
Wholesale 63,907 66,121 68,655 67,552
% change 431.0% 3.8% -1.6%
% from total 22.4% 18.8% 15.3% 11.9%
Total 284,678 351,118 449,509 568,098
% change 23.3% 28.0% 26.4%
USD in thousands FY 2012 FY 2013 FY 2014 FY 2015
Salaries (32,089) (47,733) (70,795) (94,283)
% of total S&M expenses 33.0% 34.1% 34.6% 35.8%
Rent (20,773) (29,729) (42,944) (55,360)
% of total S&M expenses 21.4% 21.2% 21.0% 21.0%
Credit card commissions (13,566) (17,268) (23,028) (25,550)
% of total S&M expenses 14.0% 12.3% 11.3% 9.7%
Electricity, upkeep and taxes (8,608) (12,658) (17,379) (23,873)
% of total S&M expenses 8.9% 9.0% 8.5% 9.1%
Depreciation and amortization (6,112) (9,875) (15,774) (20,010)
% of total S&M expenses 6.3% 7.0% 7.7% 7.6%
Other (6,546) (9,388) (14,660) (18,420)
Maintenance and repairs (4,136) (7,104) (10,303) (13,889)
Insurance (4,350) (5,230) (7,645) (9,449)
Advertising (1,011) (1,127) (1,870) (2,490)
Total S&M expenses (97,191) (140,112) (204,398) (263,324)
Section 3 - Financial Statements Analysis Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Financial Statements Analysis
Statements of Operations (continued)
Operating Profit (continued)
General and Administrative Expenses ("G&A Expenses")
The table below presents the Company's total operating income and its operating
income per operating segment for 2015:
(*) The operating profit rate was calculated from GPM's revenues.
USD in thousands FY 2012 FY 2013 FY 2014 FY 2015
Salaries, wages and related expenses (7,218) (10,062) (16,703) (19,292)
% of total G&A expenses 53.7% 60.6% 64.4% 62.1%
Other (3,119) (4,244) (6,081) (6,851)
Legal, audit and professional fees (2,376) (1,548) (2,076) (3,686)
Rent and office maintenance (727) (737) (1,088) (1,249)
Total G&A expenses (13,440) (16,591) (25,948) (31,078)
USD in thousands 2015
Retail Operating Income 74,531
% operating profit 4.6%
Wholesale Operating Income 4,148
% operating profit 3.2%
Other (54,832)
Total operating income 23,847
% operating profit 1.4%
Section 4 - Valuation Methodology Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Section 4
Valuation Methodology
Section 4 - Valuation Methodology Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Valuation Methodology
Background Market Approach
The generally accepted approaches to valuation are commonly referred to as the
following:
Market approach;
Income approach;
Asset-based approach.
Within each category, a variety of methodologies exist to assist in the estimation of
fair value. The following sections contain a brief overview of the theoretical basis of
each approach, as well as a discussion of the specific methodologies relevant to the
analyses performed.
The market approach references actual transactions in the equity of the enterprise
being valued or transactions in similar enterprises that are traded in the public
markets. Third-party transactions in the equity of an enterprise generally represent
the best estimate of fair market value if they are done at arm’s length. In using
transactions from similar enterprises, there are two primary methods. The first,
often referred to as the Guideline Transactions Method, involves determining
valuation multiples from sales of enterprises with similar financial and operating
characteristics and applying those multiples to the subject enterprise. The second,
often referred to as the Guideline Public Company Method, involves identifying and
selecting publicly traded enterprises with financial and operating characteristics
similar to the enterprise being valued. Once publicly traded enterprises are
identified, valuation multiples can be derived, adjusted for comparability, and then
applied to the subject enterprise to estimate the value of its equity or invested
capital.
Section 4 - Valuation Methodology Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Valuation Methodology
Income Approach Asset-Based Approach
The income approach is based on the premise that the value of a security or asset is
the present value of the future earning capacity that is available for distribution to
investors in the security or asset. A commonly used methodology under the income
approach is a discounted cash flow analysis. A discounted cash flow analysis involves
forecasting the appropriate cash flow stream over an appropriate period and then
discounting it back to a present value at an appropriate discount rate. This discount
rate should consider the time value of money, inflation, and the risk inherent in
ownership of the asset or security interest being valued.
A third approach to the valuation is the asset-based approach. The discrete valuation
of an asset using an asset-based approach is based upon the concept of replacement
as an indicator of value. A prudent investor would pay no more for an asset than the
amount for which he or she could replace the asset new. The asset-based approach
establishes value based on the cost of reproducing or replacing the property, less
depreciation from physical deterioration and functional obsolescence, if present and
measurable. This approach generally provides the most reliable indication of the
value of land improvements, special-purpose buildings, special structures, systems,
and special machinery and equipment.
Section 4 - Valuation Methodology Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Valuation Methodology
Discounted Cash Flow Method
The discounted cash flow (“DCF”) method under the Income Approach estimates the
future cash flow that a business is expected to generate. Future cash flow is
converted to a present value equivalent using an estimated discount rate such as the
cost of equity or the weighted average cost of capital (“WACC”), based on the type
of cash flows being discounted. We have utilized a discounted cash flow method as
an indicator of fair market value in the equity of the Company.
The DCF assumptions were estimated considering forecasts provided by, and
discussions with, Management of Company, historical operating performance, and
the economic and industry outlook as of the Valuation Date.
Debt-Free Cash Flow Assumptions and Adjustments
For purposes of this analysis, debt-free cash flow is defined as:
Earnings before Interest and Income Taxes (EBIT)
Less: Provision for Income Taxes
Equals: Debt-Free Net Income After Tax
Plus: Depreciation
Equals: Gross Cash Flow
Less: Working Capital Additions
Less: Capital Expenditures
Equals: Debt-Free Cash Flow
In applying this method, the first step is to project the debt-free cash flow that the
business will generate in the future.
Section 4 - Valuation Methodology Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Valuation Methodology
WACC
When applying the Income Approach, the cash flows expected to be generated by a
business are discounted to their present value equivalent using a rate of return that
reflects the relative risk of the investment, as well as the time value of money. This
return, known as the weighted average cost of capital (“WACC”) is calculated by
weighting the required returns on interest-bearing debt and common equity capital
in proportion to their estimated percentages in an expected industry capital
structure.
The general formula for calculating the WACC is:
WACC = Kd (D%) + Ke (E%)
Where:
WACC Weighted average rate of return on invested capital;
Kd After-tax rate of return on debt capital;
D% Debt capital as a percentage of the sum of the debt and common
equity capital (“Total Invested Capital”);
Ke Rate of return on common equity capital; and
E% Common equity capital as a percentage of the Total Invested Capital.
CAPM has been empirically tested and is widely accepted for the purpose of
estimating a company’s required return on capital. In applying the CAPM, the rate of
return on capital is estimated as the current risk-free rate of return on US Treasury
bonds, plus a market risk premium expected over the risk-free rate of return,
multiplied by the “beta” for the valued company. Beta is defined as a risk measure
that reflects the sensitivity of a company’s stock (or capital) price to the movements
of the stock market as a whole.
The CAPM rate of return on capital is calculated using the formula:
Ke Rate of return on capital (in this case, Total Invested Capital);
Rf Risk free rate of return;
Β Beta or systematic risk for this type of capital investment (in this case, asset beta);
Rm – Rf Market risk premium; the expected return on a broad portfolio of stocks in the market (Rm) less the risk free rate (Rf);
SCP Small cap premium;
SRP Specific Premium
Where, Ke = Rf + β(Rm - Rf)+ SCP+SRP.
Section 5 - Valuation – DCF Method Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Section 5
Valuation – DCF Method
Section 5 - Valuation – DCF Method Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Valuation – DCF Method
General Definitions
The Company's valuation was performed according to the Discounted Cash
Flow (DCF) Method and the income approach.
The DCF assumptions were estimated considering forecasts provided by the
Company, discussions with Management, historical operating performance,
and the economic and industry outlook as of the Valuation Date.
Nominal Cash Flow – the DCF presented below is adjusted for inflation. The
Company's discount rate (WACC) is also inflation adjusted.
The valuation's assumptions do not take into consideration any acquisitions
that the Company have executed after the Valuation Date or any potential
acquisitions that the Company may execute in the future (Fuel USA
Acquisition, Gas Mart Acquisition, please refer to section 1 – Company
Overview).
The DCF Method does not take into account the Privet Issuance transaction
(please refer to section 6 – DCF Method Post Privet Issuance).
1. "2015A" - represents the Company's audited financial statements for the 12
month period ended on December 31, 2015;
2. "2015 pr.F" - represents the Company's pro-forma for 2015 in order to
examine the Company's forecasts in 2016. This pro-forma is based on the
Company's and its acquisitions operating performances as of the beginning
of the year;
3. "2016F-2019F" - represent the Company's forecast for 2016-2019;
4. "2020F and Terminal Year" – 2020 and the terminal year were projected
and prepared after discussions with Management and based on our
assessment of economic and industry growth outlooks.
Section 5 - Valuation – DCF Method Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Valuation – DCF Method
Gross Profit
The table below presents the forecasted gross profit of the Company's Petroleum Retail Segment (USD thousands; gallons in thousands):
Gallons – Number of gallons forecasted for 2016-2019 were calculated based on the
price of gas as of December 31, 2015 and the Company’s forecast for 2016-2019 and
is expected to increase from 2020 at the same growth rate of approximately 1%. We
found this rate to be reasonable and in compliance with our market analysis (please
refer to "Market Analysis" section).
Gross Profit Cents per Gallon (CPG) – The Company's CPG on 2015 pro-forma same
stores amounts to 19.5, a decrease of approximately 8.2% compared to 2014. The
Company's CPG for 2015A amounts to 20.3. According to Management, the CPG from
2016 to 2019 is forecasted to be 20.8. This forecast takes into consideration the
Company's agreements with its petroleum suppliers, as amended.
USD in thousands FY 20142015 pr.
Same Stores2015A 2015 pr.F 2016F 2017F 2018F 2019F 2020F
Terminal
Year
Number of Gallons 380,854 376,073 500,546 562,314 555,788 561,346 566,959 572,629 578,355 584,139
% change -1.3% -1.2% 1.0% 1.0% 1.0% 1.0% 1.0%
Gross profit per gallon, Cent Per Gallon (CPG) 0.213 0.195 0.203 0.201 0.208 0.208 0.208 0.208 0.215 0.225
% change -8.18% 3.45% 0.00% 0.00% 0.00% 3.37% 4.65%
Total petroleum retail gross profit 81,016 73,453 101,627 113,018 115,566 116,722 117,889 119,068 124,307 131,391
% change -9.34% 2.25% 1.00% 1.00% 1.00% 4.40% 5.70%
Petroleum retail credit cards expenses (19,037) (13,942) (19,377) (22,704) (23,919) (26,725) (29,824) (33,245) (33,578) (33,914)
% change -26.8% 5.35% 11.73% 11.60% 11.47% 1.00% 1.00%
% of gross profit 23.50% 18.98% 19.07% 20.09% 20.70% 22.90% 25.30% 27.92% 27.01% 25.81%
Total petroleum retail gross profit, net 61,979 59,511 82,250 90,314 91,647 89,997 88,065 85,822 90,729 97,478
% change -3.98% 1.48% -1.80% -2.15% -2.55% 5.72% 7.44%
Section 5 - Valuation – DCF Method Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Valuation –DCF Method
Gross Profit (continued)
Petroleum Retail Segment (continued):
Gross Profit Cents per Gallon (CPG) (continued)
In addition, based on Management estimations, in 2020 and in the terminal year, the
Company's agreements with some of its main petroleum suppliers are expected to
change and benefit the Company. This will increase the Company's CPG by 0.007 and
0.01 in 2020 and in the terminal, respectively.
Due to internal classification differences, the petroleum retail gross profit in the
Company's financial statements for 2015 may be different than presented above.
Petroleum Retail Credit Cards Fees Expenses – Credit cards fees are payable to credit
cards companies for consumers paying with credit cards. The yearly amount of these
expenses is influenced by several parameters, such as, fuel revenue, merchandise
revenue and credit card companies' rates.
The expenses presented above represent the credit card fees related to petroleum
retail sales, only.
According to Management, there is no expectation that the credit card fees and/or
the Company's agreements with the credit cards companies, will change in the
future.
Because this expense is influenced by several parameters, it is characterized as a
variable expense that depends on the Company's number of gallons sold and on the
retail petroleum price.
In order to estimate the Company's petroleum retail credit card expenses in 2016-
2019, an analysis regarding the retail petroleum price and its connection to the
Company's petroleum retail gross profit was performed by Management.
In accordance with the Management analysis (based on the Company's Retail
historical performances and on crude oil futures' prices forecasted), between 2016
and 2019, the retail price of petroleum is predicted to increase. That assumption
leads to the conclusion that Petroleum Retail CC Expenses will increase,
respectively. After 2019, we assume that the retail petroleum price will be stable.
Therefore, the CC Expenses' growth rate will be approximately 1%, per the gallons'
growth rate.
Section 5 - Valuation – DCF Method Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Valuation- DCF Method
Gross Profit (continued)
The table below presents the forecasted gross profit of the Company's Petroleum Wholesale Segment (USD thousands; gallons in thousands):
Gallons – Number of gallons forecasted for 2016-2019 were based on the Company’s
forecast. We assume that from 2020 onward, the number of gallons is not expected
to change.
Gross Profit Cents per Gallon (CPG) – The Company's CPG on 2015A amounts to 6.8, a
decrease of 6% compared to 2014. According to Management, the CPG from 2016 is
forecasted to be 6.7. This forecast takes into consideration the Company's
agreements with its petroleum suppliers.
USD in thousands FY 20142015 pr.
Same Stores2015A 2015 pr.F 2016F 2017F 2018F 2019F 2020F
Terminal
Year
Number of Gallons 68,655 67,552 67,552 67,552 67,264 67,264 67,264 67,264 67,264 67,264
% change -1.6% -0.4% 0.0% 0.0% 0.0% 0.0% 0.0%
Gross profit per gallon, Cent Per Gallon (CPG) 0.072 0.068 0.068 0.068 0.067 0.067 0.067 0.067 0.074 0.084
% change -6.0% -1.4% 0.0% 0.0% 0.0% 10.5% 13.6%
Total petroleum wholesale gross profit 4,946 4,575 4,575 4,575 4,491 4,491 4,491 4,491 4,962 5,634
% change -7.52% -1.83% 0.00% 0.00% 0.00% 10.48% 13.56%
Petroleum wholesale credit cards expenses (470) (430) (430) (430) (534) (534) (534) (534) (534) (534)
% change -8.5% 24.2% 0.0% 0.0% 0.0% 0.0% 0.0%
% of gross profit 9.50% 9.4% 9.4% 9.4% 11.9% 11.9% 11.9% 11.9% 10.8% 9.5%
Total petroleum wholesale gross profit, net 4,477 4,145 4,145 4,145 3,957 3,957 3,957 3,957 4,428 5,100
% change -7.42% -4.52% 0.0% 0.0% 0.0% 11.9% 15.2%
Section 5 - Valuation – DCF Method Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Valuation – DCF Method
Gross Profit (continued)
Petroleum Wholesale Segment (continued):
Gross Profit Cents per Gallon (CPG) (continued)
In addition, based on Management estimations, in 2020 and in the terminal year, the
Company's agreements with some of its main petroleum suppliers are expected to
change and benefit the Company. This will increase the Company's CPG by 0.007 and
0.01 in 2020 and in the terminal year, respectively.
Due to internal classification differences, the petroleum wholesale gross profit in the
Company's financial statements for 2015 may be different than presented above.
Section 5 - Valuation – DCF Method Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Valuation – DCF Method
Gross Profit (continued)
The table below presents an overview of the forecasted gross profit of the Company's Petroleum Segment (USD thousands):
USD in thousands FY 20142015 pr.
Same Stores2015A 2015 pr.F 2016F 2017F 2018F 2019F 2020F
Terminal
Year
Total petroleum retail gross profit, net 61,979 59,511 82,250 90,314 91,647 89,997 88,065 85,822 90,729 97,478
% change -3.98% 1.48% -1.80% -2.15% -2.55% 5.72% 7.44%
Total petroleum wholesale gross profit, net 4,477 4,145 4,145 4,145 3,957 3,957 3,957 3,957 4,428 5,100
% change -7.42% -4.52% 0.0% 0.0% 0.0% 11.9% 15.2%
Total petroleum gross profit, net 66,456 63,655 86,395 94,459 95,604 93,954 92,022 89,779 95,157 102,578
% change -4.2% 1.2% -1.7% -2.1% -2.4% 6.0% 7.8%
Section 5 - Valuation – DCF Method Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Valuation – DCF Method
Revenue and Gross Profit
The table below presents an overview of the forecasted revenue, cost of sales and gross profit of the Company's Merchandise Segment (USD thousands):
Revenue – The merchandise revenues forecasts for 2016-2019 were calculated based
on the Company's forecast for 2016-2019 and is expected to increase from 2020 with
the same growth rate of approximately 3%. We found this rate to be reasonable and
in compliance with our market analysis (please refer to the "Market Analysis"
section).
Total Merchandise Gross Profit – From 2016 to 2019, the merchandise gross margin
was forecasted by Management to be approximately 31%. Based on this merchandise
gross margin and on the historical merchandise gross margin, we found this rate to
be reasonable and assumed that the merchandise gross margin forecast for onward
periods will stay stable and amount to 31%, as well. Gross profit excludes costs
associated with inventory adjustments and spoilage. Due to internal classification
differences, the merchandise gross profit in the Company's financial statements for
2015 may be different than presented above.
USD in thousands FY 20142015 pr.
Same Stores2015A 2015 pr.F 2016F 2017F 2018F 2019F 2020F
Terminal
Year
Revenue 464,812 467,099 644,382 733,562 741,975 764,235 787,162 810,777 835,100 860,153
% change 0.49% 1.15% 3.0% 3.0% 3.0% 3.0% 3.0%
Total cost of sales (328,795) (322,724) (446,486) (509,161) (513,399) (528,801) (544,665) (561,005) (577,835) (595,170)
% of COGS 70.74% 69.09% 69.29% 69.41% 69.19% 69.19% 69.19% 69.19% 69.19% 69.19%
Total merchandise gross profit 136,017 144,375 197,896 224,400 228,577 235,434 242,497 249,772 257,265 264,983
% gross profit 29.3% 30.9% 30.7% 30.6% 30.8% 30.8% 30.8% 30.8% 30.8% 30.8%
Merchandise credit cards expenses (3,519) (4,133) (5,742) (6,706) (5,914) (6,092) (6,274) (6,463) (6,656) (6,856)
% of revenue 0.76% 0.88% 0.89% 0.91% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
Total merchandise gross profit, net 132,498 140,242 192,154 217,694 222,662 229,342 236,223 243,309 250,609 258,127
% gross profit 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0%
Section 5 - Valuation – DCF Method Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Valuation – DCF Method
Revenue and Gross Profit (continued)
Merchandise Segment (continued):
Merchandise Credit Cards Fees Expenses – according to Management, merchandise
credit card expenses are calculated as a rate of its merchandise revenues. The total
credit card expense for 2016-2019 was calculated by Management.
After 2019, we assume the merchandise credit card expense rate from its
merchandise revenues will stay stable at 0.8%.
Section 5 - Valuation – DCF Method Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Valuation – DCF Method
Revenue and Gross Profit (continued)
The table below represents the Company's forecasted other income (USD thousands):
Other Income – represents all the other income that does not include petroleum
refueling services or merchandise products sold at the convenience stores. For
example: revenue from rental income from outside operators, sale of phone cards,
sale of lottery tickets and money orders, money transfer services, withdrawing of
cash (ATM), car washing, etc.
The other income forecast for 2016-2019 was calculated based on Management's
forecast for 2016-2019 and is expected to increase from 2020 at the same growth
rate of approximately 1%. We found this rate to be reasonable and in compliance
with our market analysis (please refer to the "Market Analysis" section).
USD in thousands FY 20142015 pr.
Same Stores2015A 2015 pr.F 2016F 2017F 2018F 2019F 2020F
Terminal
Year
Retail other income 17,111 17,168 23,358 26,667 26,182 26,443 26,708 26,975 27,245 27,517
% change 0.33% -1.82% 1.00% 1.00% 1.00% 1.00% 1.0%
Wholesale other income 3,388 3,504 3,504 3,504 3,612 3,650 3,687 3,726 3,763 3,800
% change 3.42% 3.09% 1.04% 1.04% 1.04% 1.0% 1.0%
Other 2,077 2,097 818 1,818 – – – – – –
% change 0.98%
Total other income 22,576 22,769 27,680 31,989 29,794 30,093 30,395 30,701 31,008 31,318
% change 0.86% -6.86% 1.00% 1.00% 1.00% 1.00% 1.00%
Section 5 - Valuation – DCF Method Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Valuation – DCF Method
Revenue and Gross Profit (continued)
The table below summarizes the total gross profit for the forecasted years (USD thousands):
USD in thousands FY 20142015 pr.
Same Stores2015A 2015 pr.F 2016F 2017F 2018F 2019F 2020F
Terminal
Year
Total petroleum gross profit, net 66,456 63,655 86,395 94,459 95,604 93,954 92,022 89,779 95,157 102,578
% change -4.2% 1.2% -1.7% -2.1% -2.4% 6.0% 7.8%
Total merchandise gross profit, net 132,498 140,242 192,154 217,694 222,662 229,342 236,223 243,309 250,609 258,127
% gross profit 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0%
Total other income 22,576 22,769 27,680 31,989 29,794 30,093 30,395 30,701 31,008 31,318
% change 0.9% -6.9% 1.0% 1.0% 1.0% 1.0% 1.0%
Total gross profit 221,529 226,667 306,229 344,142 348,060 353,389 358,640 363,789 376,773 392,023
% change 2.3% 1.1% 1.5% 1.5% 1.4% 3.6% 4.0%
Section 5 - Valuation – DCF Method Valuation Study - As of December 31, 2015 GPM Investments, LLC
55
Valuation – DCF Method
Operating Expenses and Operating Margin
The table below presents the operating expenses composition for the forecasted period (USD thousands):
The Retail and Wholesale operating expenses in each category is composed of
personnel, variable and fixed expenses.
Personnel Expenses – These expenses represent variable expenses, including salaries
and related expenses to employees and executive officers. The personnel expenses
for 2016-2019 were forecasted by Management. Based on our assumptions, from 2020
onward, these expenses were calculated according to elasticity rates for each the
Retail and the Wholesale operating segments, from the total gross margin excluding
CC Expenses.
Variable Expenses - These expenses represent the following: advertising,
maintenance and repairs, electricity, upkeep, taxes, etc. The variable expenses for
2016-2019 were forecasted by Management. Based on our assumptions, from 2020
onward, these expenses were calculated according to elasticity rates for each the
Retail and the Wholesale operating segments, from the total gross margin excluding
CC Expenses.
USD in thousands 2016F 2017F 2018F 2019F 2020FTerminal
Year
Total gross profit 348,060 353,389 358,640 363,789 376,773 392,023
% change 1.1% 1.5% 1.5% 1.4% 3.6% 4.0%
Retail operating expenses (255,395) (258,497) (261,638) (264,819) (267,325) (269,875)
% from total gross margin (excluding CC Expenses) 69.0% 68.3% 67.6% 66.9% 66.0% 65.2%
Wholesale operating expenses (5,974) (6,030) (6,088) (6,146) (6,146) (6,146)
% from total gross margin (excluding CC Expenses) 73.7% 74.1% 74.4% 74.8% 74.5% 74.1%
G&A expenses (35,689) (36,366) (37,057) (37,761) (38,604) (39,469)
% from total gross margin (excluding CC Expenses) 9.4% 9.4% 9.4% 9.3% 9.3% 9.3%
Total operating expenses (297,058) (300,894) (304,783) (308,725) (312,074) (315,489)
EBITDA 51,002 52,495 53,857 55,064 64,699 76,533
% from total gross margin 14.7% 14.9% 15.0% 15.1% 17.2% 19.5%
Section 5 - Valuation – DCF Method Valuation Study - As of December 31, 2015 GPM Investments, LLC
56
Valuation – DCF Method
Operating Expenses and Operating Margin (continued)
Fixed Expenses – According to Management, the fixed expense forecast for 2016 to
2019 is expected to increase by approximately 1%. We assumed that these expenses
are stable and are not expected to change on the long term period. Therefore, in
2020 and in the terminal year, these fixed expenses forecasted to be the same as
they were forecasted by the Management in 2019.
G&A Operating Expenses
The G&A expenses for 2016-2019 were forecasted by Management. In 2019, the G&A
expenses rate from the total gross margin (excluding CC Expenses) is amounted to
approximately 9.3%. We assumed that this rate is stable and is not expected to
change on the long term period. Therefore, in 2020 and in the terminal year, these
expenses forecasted to be approximately 9.3% from the total gross margin (excluding
CC Expenses).
Section 5 - Valuation – DCF Method Valuation Study - As of December 31, 2015 GPM Investments, LLC
57
Valuation – DCF Method
Net Operating Profit
The table below presents the forecasted net operating profit for the forecasted period (USD thousands):
Depreciation – represents the Company's depreciation expenses for tax purposes. The
forecasted depreciation expenses for 2016-2020 were forecasted by Management.
The depreciation expenses forecast for the terminal year is expected to converge
gradually to a capital expenditure annual rate from the total gross profit (please
refer to the "Cash Flow Adjustments").
Amortization - represents the Company's amortization expense for tax purposes. The
forecasted amortization expenses for 2016-2030 were forecasted by Management
(please refer to the "Cash Flow Adjustments").
Tax Expenses – the weighted income tax rate (at the level of the members of the
Company) is composed from a federal income tax rate, amounting to 34%, and from a
state income tax rate which is determined according to the state where the income
is produced. According to Management, the effective income tax rate as of
December 31, 2015 is approximately 38%.
USD in thousands 2016F 2017F 2018F 2019F 2020FTerminal
Year
EBITDA 51,002 52,495 53,857 55,064 64,699 76,533
% from total gross margin 14.7% 14.9% 15.0% 15.1% 17.2% 19.5%
Depreciation (TAX purpose) (20,492) (19,630) (17,669) (16,358) (15,709) (13,854)
Amortization (TAX purpose) (3,553) (3,553) (3,553) (3,553) (3,553) –
Net Operating Profit before Tax 26,958 29,312 32,635 35,153 45,437 62,679
% from total gross profit 7.7% 8.3% 9.1% 9.7% 12.1% 16.0%
Tax Expenses (10,411) (11,320) (12,604) (13,576) (17,548) (24,207)
Deductible TAX 651 651 651 651
Net Operating Profit after Tax 17,198 18,643 20,683 22,228 27,889 38,473
% from total gross profit 4.9% 5.3% 5.8% 6.1% 7.4% 9.8%
Section 5 - Valuation – DCF Method Valuation Study - As of December 31, 2015 GPM Investments, LLC
58
Valuation – DCF Method
Adjustments to Cash Flow
In order to arrive at a debt-free net cash flow in our valuation model, the net operating profit after tax had to be adjusted for certain items in order to estimate the cash return
on the assets that generate the forecasted revenue. Firstly, non-cash items (depreciation and amortization) were added back to the debt-free net income. Secondly, forecasted
capital expenditures ("CapEx") and investment in working capital were deducted.
The following is the forecasted adjustments to cash flow for the forecasted period (USD thousands):
USD in thousands 2016F 2017F 2018F 2019F 2020FTerminal
Year
Net Operating Profit after Tax 17,198 18,643 20,683 22,228 27,889 38,473
% from total gross profit 4.9% 5.3% 5.8% 6.1% 7.4% 9.8%
Cash Flow Adjustments
Depreciation (TAX purpose) 20,492 19,630 17,669 16,358 15,709 13,854
% from gross margin 5.9% 5.6% 4.9% 4.5% 4.2% 3.5%
Amortization (TAX purpose) 3,553 3,553 3,553 3,553 3,553 –
CapEx (13,315) (13,315) (13,315) (13,315) (13,315) (13,854)
% from gross margin 3.8% 3.8% 3.7% 3.7% 3.5% 3.5%
Changes in working capital (45) (61) (60) (59) (148) (174)
Total adjustments 10,685 9,807 7,847 6,537 5,799 (174)
Section 5 - Valuation – DCF Method Valuation Study - As of December 31, 2015 GPM Investments, LLC
59
Valuation – DCF Method
Adjustments to Cash Flow (continued)
Amortization - Under the assumption that the Company will not actively acquire
intangible assets, these expenses will not exist in the long term. Therefore, the
Management's amortization expense forecast for the terminal year is zero.
Tax amortization assets - The capitalized tax value derived from the forecasted
amortization expense in 2021-2030, was added, at a discount, directly to the
Company's value from operations.
The table below presents the Company's tax amortization assets' calculation as of
December 31, 2015 (in USD thousands):
CapEx – The Company's CapEx forecast for 2016-2020 was estimated by Management.
According to Management, the Company's CapEx forecast for 2020 amounted to
approximately 3.5% from total gross profit. For further periods, we assume that the
CapEx rate of total gross profit will be 3.5% as well.
Depreciation – The depreciation expenses forecast in the terminal year is
expected to converge gradually to a capital expenditure annual rate from
the Company's total gross profit, and offset the CapEx rates of total gross
profit.
Changes in Working Capital – The Company's changes in working capital
forecast for the forecasted years were calculated based on the Company's
working capital rate of total gross profit for the 12 month period ended in
December 31, 2015, and on the assumption that the Company will preserve
this rate during the forecasted period (approximately 1.1%).
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Amortization Expenses 3,553 2,792 2,031 1,740 1,655 1,655 1,642 1,604 1,604 334
Tax Rate 38% 38% 38% 38% 38% 38% 38% 38% 38% 38%
Tax Shield 1,372 1,078 784 672 639 639 634 619 619 129
Amortization Period 5.50 6.50 7.50 8.50 9.50 10.50 11.50 12.50 13.50 14.50
Discounted Tax Shield 865 625 418 329 288 265 242 217 200 38
Tax Amortization Asset 3,487
Section 5 - Valuation – DCF Method Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Valuation – DCF Method
Discounted Cash Flow (continued)
Using a DCF method, the Company's value from operations as of December 31, 2015 was determined to be USD 520,383 thousands:
Discount Rate – The Company's debt free cash flow was discounted with a discount rate of 8.75% (please refer to the appendix "WACC").
Terminal Growth Rate - the Company's terminal growth rate used for the terminal year debt free cash flow discount is approximately 2.3% and it represents the total gross profit growth rate in the
terminal year.
USD in thousands 2016F 2017F 2018F 2019F 2020FTerminal
Year
Net Operating Profit after Tax 17,198 18,643 20,683 22,228 27,889 38,473
% from total gross profit 4.9% 5.3% 5.8% 6.1% 7.4% 9.8%
Total adjustments 10,685 9,807 7,847 6,537 5,799 (174)
Debt Free Cash Flow 27,883 28,450 28,530 28,765 33,688 38,299
% from total gross profit 8.01% 8.05% 7.95% 7.91% 8.94% 9.77%
Period 0.5 1.5 2.5 3.5 4.5 4.5
Discounted Cash Flow 26,737 25,087 23,133 21,447 23,096 410,825
Total Discounted Cash Flow 530,325
Environmental liabilities and ARO (9,941)
Value from operations (EV) 520,383
Section 5 - Valuation – DCF Method Valuation Study - As of December 31, 2015 GPM Investments, LLC
61
Valuation – DCF Method
Sensitivity Analysis
The following is a sensitivity analysis of the Company's value from operations according to the change in the Terminal growth rate and to the change in the Company's weighted
average cost of capital (WACC):
The following is a sensitivity analysis of the Company's value from operations according to the change in the Terminal CapEx rates and to the change in the Company's weighted
average cost of capital (WACC):
######## 9.75% 9.25% 8.75% 8.25% 7.75%
1.3% 408,532 435,297 465,678 500,456 540,653
1.8% 427,304 457,033 491,062 530,391 576,359
2.3% 448,598 481,898 520,383 565,362 618,622
2.8% 472,957 510,620 554,636 606,753 669,429
3.3% 501,095 544,173 595,177 656,513 731,663
WACC
Terminal
growth
rates
######## 9.75% 9.25% 8.75% 8.25% 7.75%
2.5% 469,859 505,163 545,975 593,687 650,199
3.0% 459,229 493,530 533,179 579,524 634,410
3.5% 448,598 481,898 520,383 565,362 618,622
4.0% 437,967 470,266 507,587 551,199 602,833
4.5% 427,337 458,633 494,791 537,036 587,044
WACC
Terminal
CapEx
rates
Section 5 - Valuation – DCF Method Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Valuation – DCF Method
Equity Value
The following is the Company's equity value:
Based on the DCF Method, the Company's equity's value, as of December 31, 2015,
was determined to be approximately USD 393 million.
(*) Net Financial Liabilities - As of December 31, 2015, the Company's net financial
liabilities are composed of the following:
USD in thousands
Value from operation 520,383
Net financial liabilities (*) (127,105)
Equity's value 393,278
USD in thousands
Cash and cash equivalents 7,649
Financing lease obligations (1) (14,562)
Promissory notes from Holdings 6,994
Bank and related party loans (2) (128,228)
Current Maturity of M idwest Seller Note (4,696)
Deferred tax (3) 3,185
Other (4) 2,702
Total net debt (126,956)
Liabilities Fair Value Adjustments (5) (243)
TAX 38%
After Tax Fair Value Adjustments (149)
Total net debt (127,105)
Section 5 - Valuation – DCF Method Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Valuation – DCF Method
Equity Value (continued)
(1)
(2)
(3) The deferred tax assets and liabilities presented below are those that were
classified as net debt:
(4)
(5) The table below presents the Company's net debt book value and fair value
according to the Company's financial statements, as of December 31, 2015:
USD in thousands
Current maturity of financial lease obligations (2,983)
Financing lease liabilities (11,579)
Total financing lease obligations (14,562)
USD in thousands
Current Portion of Bank Loans (34,672)
Related Party Loans - ST (44,057)
Accrued Interest (805)
Bank Loans - LT (32,767)
Loan from Sellers - LT (15,927)
Total bank and related party loans (128,228)
USD in thousands
Deferred Tax Liability - LT 3,126
DT ACS 59
Total Deferred Tax 3,185
USD in thousands
Restricted cash 1,500
Other (1,500)
Other receivables 52
Prepaid expenses 4,364
Real estate assets held for sale 66
Notes Payable (865)
Accrued expenses (490)
Trade Payables (425)
Total Other 2,702
USD in thousands Book Value Fair Value Difference
Promissory notes from Holdings 6,994 6,973 (21)
PNC line of credit (21,102) (21,185) (83)
PNC term loan (41,693) (41,872) (179)
M&T term loan (4,644) (4,664) (20)
Loans from ARKO (28,465) (28,485) (20)
Loans from Holdings (16,250) (16,252) (2)
Midwest Seller Note (3,640) (3,629) 11
Financing leases (14,562) (14,491) 71
Total (123,362) (123,605) (243)
Section 6 - Valuation – DCF Method, Post Private Issuance Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Section 6
Valuation – DCF Method, Post Private Issuance
Section 6 - Valuation – DCF Method, Post Private Issuance Valuation Study - As of December 31, 2015 GPM Investments, LLC
65
Valuation – DCF Method, Post Private Issuance
Merger and Acquisition Method Limited Partnership
A general way of determining a value indication of a business, business ownership
interest, security or asset by using one or more methods that compare the subject to
similar businesses, business ownership interests, securities or assets that have been
sold. The market approach is based on the principle of substitution, which reflects
the premise that an informed investor would pay no more for a security or asset than
he/she could pay for another security or asset of equal utility.
The merger and acquisition method is based upon the merger, acquisition or
divestiture, within a comparable time frame, of companies engaged in activities
similar to the Company. These transactions typically involve controlling interests and
the indicated value from this method would be on a controlling-interest basis.
On January 11, 2016, the Company and certain subsidiaries including its limited
partnership subsidiary, GPM Petroleum LP ("GPMP"), signed an agreement with a US
investment company through two of its funds (collectively, the "Investor"), pursuant
to which, within the framework of a private placement, GPMP issued to the Investor,
upon closing on January 12, 2016, 22.46% of the limited partnership interests in
GPMP (3.5 million Class A Preferred Units), in exchange for consideration of USD 70
million (USD 20 per unit). The balance of the limited partnership interests
(approximately 77.54%) are held by the Company through GPM Investments, LLC and
WOC Southeast Holding Corp. (“WOC”), a wholly owned and controlled subsidiary of
GPM.
As part of completion of the transactions, with regard to GPMP (directly or relating
to an entity wholly-owned and controlled by it), the following actions were taken:
a. Assignment of petroleum distribution agreements – GPMP assumed all the
rights and obligations under the agreements between the Company and its
petroleum suppliers. GPM Investments, LLC has agreed to guaranty the
obligations under such agreements.
b. Distribution agreements with the Company – The Group entered into
exclusive supply agreements for 10 years with GPMP and its subsidiaries
pursuant to which the Group will purchase fuel from GPMP at GPMP’s cost of
petroleum including taxes and transportation plus a fixed margin of 4.5
cents per gallon.
Section 6 - Valuation – DCF Method, Post Private Issuance Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Valuation – DCF Method, Post Private Issuance
Limited Partnership (continued) Valuation - General
c. Regarding the relationship between the Company and GPMP with respect to
future transactions – Until the earlier of (i) 10 years following January 12,
2016 or (ii) the consummation of an IPO, in the event that the Company or
any entity controlled by the Company proposes to acquire any retail or
wholesale fuel distribution assets, GPMP shall have the right to purchase
such petroleum supply activity or will otherwise distribute petroleum to the
Company for sale at such acquired assets at a lower fixed margin than
mentioned in item b above.
d. Assignment of financial liabilities to GPMP – GPMP assumed financial
liabilities of the Company and GPM WOC Holdco, LLC in a total amount of
approximately USD 64 million, which included (1) assignment of Road Ranger
Related-Party Loans in the amount of approximately USD 24 million, (2) the
assignment of approximately USD 32.4 million loans from PNC, and (3)
approximately USD 7.7 million of certain trade payables.
e. GPMP, certain lenders and KeyBank National Association, as the
administrative agent, swingline lender and letter of credit issuer entered
into a credit agreement for a credit line of up to USD 110 million (subject to
increase as set forth in the credit agreement).
The Company's equity fair value was calculated in two stages:
First Stage - The Company's holdings in GPMP, amounts to 77.54%. The
Company's holdings in GPMP were valued based on the offering equity value;
Second Stage - The residual GPM value, after shifting GPMP results from
GPM. The Company's residual fair value was performed according to the DCF
Method using relevant adjustments.
Section 6 - Valuation – DCF Method, Post Private Issuance Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Valuation – DCF Method, Post Private Issuance
First Stage Second Stage
The offering valuation (equity value) amounted to approximately USD 311.7 million.
The table below presents the offering valuation calculation (USD):
Due to the fact that the Company holds 77.54% in GPMP, the equity value related to
GPM amounted to approximately USD 242 million.
Please note that the Company's holdings value in GPMP may be higher than USD
242 million, due to the fact that GPM owns 100% of the General Partner of GPMP.
This potential value was not taken into consideration.
According to Management and the agreements related to GPMP, the table below
presents the EBITDA adjustments needed in order to calculate the Company's residual
value (USD in thousands):
(1) As mentioned above, according to the agreements, the Group will purchase fuel
from GPMP at GPMP’s cost of petroleum including taxes and transportation plus a
fixed margin of 4.5 cents per gallon.
(2) According to Management, GPMP will pay the Company an estimated annual
management fee of USD 500 thousands.
(3) According to Management, GPMP’s other operating expenses are approximately
USD 130 thousands.
Please note that no additional adjustments were performed to the Company's
forecasted cash flows, included in Section 5.
MLP Agreement offering valuation
Class A preferred units 3,500,000
Class B preferred units 12,085,000
Total offering units 15,585,000
Purchase price per unit (USD) 20
Total offering value 311,700,000
USD in thousands Note 2016F 2017F 2018F 2019F 2020FTerminal
Year
Number of Gallons 623,052 628,610 634,223 639,893 645,619 651,403
% change 0.9% 0.9% 0.9% 0.9% 0.9%
Gross profit per gallon, CPG 0.045 0.045 0.045 0.045 0.045 0.045
Total gross profit adjustment 1 (28,037) (28,287) (28,540) (28,795) (29,053) (29,313)
Management fee to GPM 2 500 500 500 500 500 500
Other 3 130 131 132 134 135 136
% from gross profit 0.46% 0.46% 0.46% 0.46% 0.46% 0.46%
Total EBITDA adjustment (27,407) (27,656) (27,908) (28,162) (28,418) (28,677)
Section 6 - Valuation – DCF Method, Post Private Issuance Valuation Study - As of December 31, 2015 GPM Investments, LLC
68
Valuation – DCF Method, Post Private Issuance
Second Stage (continued)
The table below presents the Company's residual EBITDA for the forecasted period (in USD thousands):
USD in thousands 2016F 2017F 2018F 2019F 2020FTerminal
Year
EBITDA 51,002 52,495 53,857 55,064 64,699 76,533
% from total gross margin 14.7% 14.9% 15.0% 15.1% 17.2% 19.5%
GPMP Adjustments (27,407) (27,656) (27,908) (28,162) (28,418) (28,677)
Residual EBITDA GPM 23,595 24,839 25,949 26,902 36,281 47,856
Section 6 - Valuation – DCF Method, Post Private Issuance Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Valuation – DCF Method, Post Private Issuance
Second Stage (continued)
Using a DCF method, the Company's residual value from operations as of December 31, 2015(1) was determined to be USD 224,713 thousands:
(1) Assuming no other change is required for the period from December 31, 2015 until January 12, 2016.
(2) Discount Rate – The debt free cash flow was discounted with a discount rate of 9.75% (please refer to the Appendixes).
USD in thousands 2016F 2017F 2018F 2019F 2020FTerminal
Year
Residual EBITDA GPM 23,595 24,839 25,949 26,902 36,281 47,856
Depreciation (TAX purpose) (20,492) (19,630) (17,669) (16,358) (15,709) (13,854)
Amortization (TAX purpose) (3,553) (3,553) (3,553) (3,553) (3,553) –
Net Operating Profit before Tax (450) 1,656 4,728 6,992 17,019 34,002
% from total gross profit -0.1% 0.5% 1.3% 1.9% 4.5% 8.7%
Tax Expenses 174 (640) (1,826) (2,700) (6,573) (13,132)
Deductible TAX 651 651 651 651
Net Operating Profit after Tax 375 1,668 3,553 4,943 10,446 20,871
% from total gross profit 0.1% 0.5% 1.0% 1.4% 2.8% 5.3%
Total adjustments 10,685 9,807 7,847 6,537 5,799 (174)
Debt Free Cash Flow 11,060 11,475 11,400 11,479 16,245 20,697
% from total gross profit 3.18% 3.25% 3.18% 3.16% 4.31% 5.28%
Period 0.5 1.5 2.5 3.5 4.5 4.5
Discounted Cash Flow (2) 10,557 9,980 9,034 8,289 10,688 186,106
Total Discounted Cash Flow 234,654
Environmental liabilities and ARO (9,941)
Value from operations (EV) 224,713
Section 6 - Valuation – DCF Method, Post Private Issuance Valuation Study - As of December 31, 2015 GPM Investments, LLC
70
Valuation – DCF Method, Post Private Issuance
Valuation Summary
The table below presents the Company's equity value considering the post private
issuance (USD in thousands):
The Company's equity's value, as of December 31, 2015, was determined to be
approximately USD 404,300 million.
(*) Net Financial Liabilities - The Company's net financial liabilities are composed of
the following:
USD in thousands
Residual GPM - Value from operation 224,713
Residual GPM - Net financial liabilities (*) (62,105)
GPM Residual Equity's value 162,607
77.54% from GPMP 241,692
Total equity value 404,300
USD in thousands
Net debt (Section 5, Valuation - DCF Method) (127,105)
Investment amount (cash) 70,000
GPMP transaction costs (5,000)
Total net debt (62,105)
Section 7 - Valuation - EBITDA Ratios Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Section 7
Valuation - EBITDA Ratios
Section 7 - Valuation - EBITDA Ratios Valuation Study - As of December 31, 2015 GPM Investments, LLC
72
Valuation - EBITDA Ratios
Public Company Method
The public company method is based upon transactions of minority interests in
publicly-traded companies (comparable companies) that are engaged in a line (or
lines) of business similar to that of the Company’s.
The table below presents the Company's comparable companies and their EV to
EBITDA multiples (USD thousands):
The table below presents the Company's equity value according to its comparable
company's EBITDA ratios (USD in thousands):
(*) Please refer to Section 6, Valuation – DCF Method, Post Private Issuance.
Company EV Current EBITDA T12M Ratio
Casey's General Stores, Inc 5,054,719 548,216 9.220
CST Brands, Inc 3,990,452 476,000 8.383
Murphy USA Inc 2,906,878 342,306 8.492
TravelCenters of America LLC 841,168 150,680 5.582
Sunoco LP 5,286,667 519,269 10.181
Alimentation Couche-Tard Inc 26,657,128 2,101,200 12.687
Buckeye Partners, L.P. 12,586,506 825,394 15.249
CrossAmerica Partners LP 1,214,098 74,244 16.353
Average 7,317,202 629,664 10.8
USD in thousands
Residual GPM - EBITDA 2016 (*) 23,595
Average EBITDA ratio 10.8
Residual GPM value from operation 254,079
Residual GPM - Net financial liabilities (*) (62,105)
GPM Residual Equity's value 191,974
77.54% from GPMP 241,692
Total equity value 433,666
Section 8 - Valuation - Summary Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Section 8
Valuation - Summary
Section 8 - Valuation - Summary Valuation Study - As of December 31, 2015 GPM Investments, LLC
74
Valuation - Summary
Equity's Value Summary
The table below presents the Company's equity value according to three methods presented above (USD thousands):
The Company's equity's value, as of December 31, 2015(*), was determined to be USD 410,414 thousands.
(*) Assuming no other change is required for the period from December 31, 2015 until January 12, 2016.
# Approach Method Forecasted
EBITDA 2016
EBITDA
Multiply
Value From
Operation
Net Debt Equity's Value
Adjustments
Equity's Value # Section
1 DCF Method 51,002 10.2 (P.N) 520,383 (127,105) – 393,278 5
2 DCF Method, Post Private Issuance 23,595 9.5 (P.N) 224,713 (62,105) 241,692 404,300 6
3 Public Company Method (EBITDA Ratios) 23,595 10.8 254,079 (62,105) 241,692 433,666 7
Average 410,414
Section 9 - Appendixes Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Section 9
Appendixes
Section 9 - Appendixes Valuation Study - As of December 31, 2015 GPM Investments, LLC
76
Appendixes
WACC – DCF Method
Following are the parameters that served for the calculation of the Company's WACC:
Tax Rate - the weighted income tax rate (at the level of the members of the Company) is composed from a federal income tax rate, amounting to 34%, and from a state income
tax rate which is determined according to the state where the income is produced. According to Management, the effective income tax rate as of December 31, 2015 is
approximately 38%.
Parameter Symbolization Value Source
Equity E/V 69.3%
Debt D/V 30.7% Damodaran January 2016 (Oil/Gas and Retail Industries) and comparable companies
Cost of Debt Kd 3.85% Damodaran January 2016 (Oil/Gas and Retail Industries)
1 - Tax Rate 1-T 61.38% Based on the Company's effective tax rate as of December 31, 2015
Beta β 0.78 According to comparison group, adjusted to the Company's financial leverage
Rf Rf 2.52% Risk free interest rate for 15 years, US Treasury, Bloomberg, as of December 31, 2015
Market Premium Rm-Rf 6.00% Damodaran January 1st, 2016 (USA)
Size Premium SRP 4.22% Duff& Phelps 2015
Cost of Equity Ke 11.4% Rf +β*(Rm-Rf)+SRP
WACC 8.75% (D/V)*(1-T)*Kd + (E/V)*Ke
Section 9 - Appendixes Valuation Study - As of December 31, 2015 GPM Investments, LLC
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Appendix
WACC – DCF Method, Post Private Issuance
Following are the parameters that served for the calculation of the Company's WACC:
Tax Rate - the weighted income tax rate (at the level of the members of the Company) is composed from a federal income tax rate, amounting to 34%, and from a state income
tax rate which is determined according to the state where the income is produced. According to Management, the effective income tax rate as of December 31, 2015 is
approximately 38%.
Parameter Symbolization Value Source
Equity E/V 69.3%
Debt D/V 30.7% Damodaran January 2016 (Oil/Gas and Retail Industries) and comparable companies
Cost of Debt Kd 3.85% Damodaran January 2016 (Oil/Gas and Retail Industries)
1 - Tax Rate 1-T 61.38% Based on the Company's effective tax rate as of December 31, 2015
Beta β 0.78 According to comparison group, adjusted to the Company's financial leverage
Rf Rf 2.52% Risk free interest rate for 15 years, US Treasury, Bloomberg, as of December 31, 2015
Market Premium Rm-Rf 6.00% Damodaran January 1st, 2016 (USA)
Size Premium SRP 5.78% Duff& Phelps 2015
Cost of Equity Ke 13.0% Rf +β*(Rm-Rf)+SRP
WACC 9.75% (D/V)*(1-T)*Kd + (E/V)*Ke