Viva Energy announced OTR Groups acquisition; Shares up on ASX

Key Takeaways:

• Viva Energy Group announced the acquisition of OTR Group for AU$1.15 billion.
• The consideration will be funded via AU$1 billion of debt and working capital and AU$150 million via equity.

Viva Energy Group Limited (ASX: VEA) shares are up by 5.032% and are trading at AU$3.235 (AEST 12:26) following the release of the announcement related to the acquisition of OTR Group.

OTR Group is a top independent convenience retailer in Australia. The business generates over AU$3 billion in revenue annually and employs nearly 6,500 people. OTR Group comprises of:

1. The OTR Convenience Retail network of 205 company owned & controlled leasehold stores operating under the OTR brand.

2. Smokemart and Giftbox (SMGB), which offers tobacco & cigarette wholesale arrangements to OTR as well as other retail third-party networks.

3. Mogas Regional and Reliable Petroleum wholesale fuel and lubricant businesses that serve customers in regional South Australia.

Viva Energy signed a contract to acquire the OTR Group for AU$1.15 billion from Peregrine Corporation. The OTR network & wholesale fuel businesses will be acquired via a share sale. On the other hand, the SMGB business will be acquired via an asset sale. The acquisition amount will be funded via AU$1 billion of debt and working capital, along with an equity portion of AU$150 million to be issued to the sellers. The debt portion will be funded via the present debt facilities & the bridging finance, with long-term debt facilities put in place over time. Of the equity component, 50% will be escrowed for 12 months subsequent completion. The remaining portion will be escrowed for 24 months. The number of shares issued to the sellers will be based on ~20-day volume weighted average price before signing the agreement (conditional on adjustments if the Company issues shares at a price below the VWAP in the period before completion).

The completion of the transaction is likely to occur in 2H FY2023 and is conditional upon FIRB & ACCC consent.

Significance of this acquisition:

The acquisition of OTR Group supports the Company’s vision to be Australia’s leading convenience retailer with a way to establish over 1,000 stores. The Company would be able to secure cutting-edge convenience capabilities, which would otherwise have taken years to develop. Other than this, it will diversify the Company’s earnings exposure, lifting the share of earnings from non-fuel sources from ~30% (post Coles Express) to an expected ~50% of the Convenience & Mobility business. Besides, the acquisition will accelerate earnings growth of Viva Energy’s convenience business and integration of Coles Express acquisition through OTR proven product offering, synergies, associated brands, quick-service restaurant operations, advanced technology, and supply chain capability.

Financial Impact of this acquisition:

Through this acquisition, the Company would be able to deliver AU$4.2 billion of sales revenue on a pro forma forecast FY2023 (June-end) basis, comprising AU$2.4 billion of non-fuel sales. It will add AU$165 million EBITDA (RC) post integration and synergies, of which AU$15 million to AU$20 million will be assigned to Commercial & Industrial. The integration of OTR into the Viva Energy Retail and Coles Express networks could drive synergies of ~AU$60 million yearly and is expected to realise in 3 years via cost & efficiency enhancements, supply chain procurement, operations, technology systems, and marketing.

The acquisition will also increase the Company’s capex between $10 million to $15 million in annual maintenance. As a result, the total maintenance for the Convenience & Mobility business would be ~AU$80 million per annum.

Management Commentary:

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