Arko Holdings, whose primary asset is a controlling stake in GPM Investments, announced plans for its store prototype of the future for remodels and raze and rebuilds.
GPM currently anticipates that it will remodel approximately 360 of its sites in key locations across the country over the next three to five years. Arko/GPM and Haymaker Acquisition Corp. also announced today a commitment for an up to $100 million investment in convertible preferred stock from MSD Capital that will be available for growth capital and funding this remodel program.
“We have been working on this prototype over the last year and are very excited about the extensive remodel program, and the benefits it will bring to our existing customers, as well as new customers who will be drawn in by the fresh new look,” said Arie Kotler, CEO of Arko and GPM. “Our remodeled stores will feature an expanded offering with grab ‘n’ go prepared food, beer caves, frozen food, an enhanced drink lineup and much more. Over the past few months, we have had the opportunity to take learnings from our customers’ shopping behaviors as well as the changing consumer environment and implement key updates to our remodel program and in-store offering to provide an enhanced customer experience emphasizing the local regional brand.”
The remodel program across fas mart, E-Z Mart, Scotchman and the rest of the portfolio of brands will include:
- Expanded freezers for frozen foods
- Expanded grab-and-go open air coolers for prepared foods
- Roller grills for hot dogs and Tornados
- Hot grab-and-go for breakfast sandwiches and bakery items
- Walk-in beer caves
- New checkout experience
- Essential safety items to include hand sanitizers, pump soap, masks, gloves and wipes
- Expanded fountain drink assortment with chewy ice
- Addition of Frazil frozen drinks to 800-plus stores
- Expanded coolers for water, soda, energy drinks and beer
- New bean to cup coffee on demand for a fresh cup all the time
- Delivery: Currently available at 20 sites, GPM is rolling out delivery via DoorDash at 300-plus more stores this year.
“We believe this remodel program will generate approximately $72 million of incremental EBITDA over the next three to five years,” said Kotler. “In addition to our other strategic initiatives, including our continued core acquisition strategy as well as synergies from the recently acquired Empire business, this aggressive remodeling program underlies our confidence in our ability to continue to drive strong and consistent growth and returns for all our stakeholders.”
In addition, the company announced that affiliates of MSD Partners will purchase up to $100 million of convertible preferred stock to support the combined entity’s future growth objectives. The company has raised its projections for 2020 and 2021 results.
Following strong year-to-date results and the recent acquisition of Empire Petroleum Partners’ fuel distribution business and retail locations, the GPM has raised its projection for fiscal 2020 and expects to deliver adjusted EBITDA1, excluding 2020 results from our recently acquired Empire business, in the range of $163 million to $167 million compared to its prior projection of $145 million to $150 million. The company had achieved 94% of its previously projected adjusted EBITDA by Sept. 30 and achieved positive same store sales in October of 4.8% with performance accelerating as same store sales for the first two weeks of November increased 7.1%. These results, in conjunction with lower expenses and higher fuel profit margins than anticipated, are the foundation for the revised guidance.
The company’s higher fuel margin, plus its continuing positive in-store same store sales growth, together with the Company’s enhanced store remodel program, have caused it to project more robust performance for 2021. The company’s revised projections for 2021 indicate that it will achieve adjusted EBITDA in the range of $217 million to $223 million compared to its prior projection of $210 million to $215 million.
Finally, Arko shareholders approved the proposed business combination between Arko and Haymaker.
“This vote was an important milestone for Arko, and we are thrilled to receive the support of our shareholders as we move forward with our business combination with Haymaker,” said Kotler. “As I have previously stated, I am proud to be rolling over at least 90% of my ownership to become the combined company’s largest individual investor, joining seasoned institutional investors including Davidson Kempner, Ares and Harvest Partners who have elected to rollover 100% of their current equity holdings. We believe we have a long runway of growth in this attractive and fragmented industry and look forward to building on our track record of success as we look towards the completion of our business combination and resulting Nasdaq listing.”
Based in Richmond, Va., GPM was founded in 2003 with 169 stores and has grown through acquisitions to become the seventh-largest convenience store chain in the U.S., with, following the consummation of the Empire acquisition, 2,930 locations comprised of 1,350 company-operated stores and 1,580 dealer sites to which it supplies fuel, in 33 states and Washington D.C.
GPM operates in three segments: retail, which consists of fuel and merchandise sales to retail consumers; wholesale, which supplies fuel to third-party dealers and consignment agents; and GPM Petroleum, which supplies fuel to GPM and its subsidiaries selling fuel (both in the retail and wholesale segments) as well as subwholesalers and bulk purchasers.
Arko is the controlling shareholder of GPM and, as part of the business combination with Haymaker, the shares of Arko will be de-listed from Tel-Aviv stock exchange. At the closing of the business combination with Haymaker, Arko will have no material independent operating activities, income, or net assets, other than its ownership interest in GPM.
Haymaker is a $400 million blank check company formed for the purpose of entering into a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Haymaker’s acquisition and value creation strategy is to identify, acquire and, after its initial business combination, build a company in the consumer, retail, media, or hospitality industries. Haymaker is led by CEO and Executive Chairman Steven J. Heyer, President Andrew R. Heyer, Chief Financial Officer Christopher Bradley, and Senior Vice President Joseph Tonnos.