Breakingviews: Couche-Tard deal machine faces ultimate test

Alimentation Couche-Tard’s voracious dealmaking appetite faces its biggest test. The company, which opened its first convenience store in Quebec 44 years ago, has swallowed 75 rivals at a total cost of around $18 billion since 1996, according to Dealogic data. But its latest target, Japan’s Seven & i, is a much bigger gulp. Success will depend on Couche-Tard learning from the deals that got away.

Unlike many acquisition addicts, Couche-Tard’s purchases tend to pay off. According to TD Cowen analysts, synergies from six of its biggest past deals were higher than initially expected. That helped the $52 billion company’s shares handily outperform the local S&P/TSX Composite Index over the past five years. It also has a history of borrowing to fund deals, then quickly repaying the debt.

The company’s financial goals require it to keep shopping, though. Couche-Tard is targeting $10 billion in EBITDA by the financial year ending April 2028, up from $5.6 billion in the most recent financial year. TD Cowen’s Michael Van Aelst estimates organic growth will add only $2.2 to $2.8 billion in incremental EBITDA in that period.

Still, some of Couche-Tard’s biggest deals have failed to cross the finishing line. The French government in 2021 scuppered a $20 billion takeover of supermarket chain Carrefour. Couche-Tard also walked away from a $5.6 billion bid for petrol station operator Caltex Australia, now renamed Ampol, at the height of the pandemic in 2020. U.S. convenience store chain Casey’s General Stores rebuffed the company’s offer in 2010.

Those deals hold important lessons for Couche-Tard’s pursuit of Seven & i. Like their French counterparts, Japanese authorities may decide the company’s 7-Eleven stores are too important to be under foreign ownership. Bloomberg reported citing unnamed sources that the company is seeking a designation as a “core” company, a tag that applies to sectors like aerospace, nuclear energy and rare earths. Couche-Tard will have to ease these concerns.

Caltex, meanwhile, offers a reminder of when to walk away. Since Couche-Tard dropped its bid, the target’s shares have only risen about 30%, underperforming the broader S&P/ASX 200 Index. And while Casey’s has flourished as a stand-alone company since fighting off Couche-Tard, the process was likely expensive and time-consuming for the thwarted buyer.

Seven & i will not fold easily. The Japanese company will tell Couche-Tard its proposed takeover, which valued the target’s equity at around $40 billion in cash, is too low, Nikkei reported on Thursday. It also faces antitrust issues in the United States. To keep its deal machine humming, the Circle-K operator will have to remember past M&A lessons.