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BP’S $1.3bn Acquisition of TravelCenters of America

Updated: Oct 30, 2023

Acquisition Overview

In a push for more investment in convenience, bioenergy and EV charging, British multinational oil and gas company BP has acquired the publicly traded full-service travel centre network TravelCenters of America (TA), in a $1.3bn deal set to close in mid-2023. BP’s existing predominantly off-highway convenience and mobility business will be complemented by TA’s strategically-located network of highway sites, allowing both companies to provide seamless nationwide services to customers. This puts BP on track to grow their strategic transition growth engines of convenience and mobility footprint, aiming to significantly grow investment throughout this decade.

Deal Structure

BP has acquired the publicly traded company TravelCenters in a transaction valued at $1.3bn. The terms of the merger agreement state that BP will acquire all outstanding shares of TA for $86 per share in cash, an 84% premium in the average trading price per share in cash. However, upon the announcement of the deal, TA’s shares surged about 70% to $84.3 in morning trading, hovering near BP’s per share cash offer which might make TA’s shareholders question the premium they are set to receive. For the sale to be successful, it is subject to the condition that it is approved by shareholders who collectively hold a majority of TA’s outstanding shares. Nevertheless, Service Properties Trust and The RMR Group, each respectively owning 7.8% and 4.1% of the outstanding shares, have both agreed to vote in favour of the sale. This acquisition is set to bring approximately 280 TravelCenters of America sites, across 44 US states, into the BP portfolio. BP expects the deal to offer a return on investment of over 15% and to be accretive to free cash flow per share from 2024. Additionally, it is set to add EBITDA immediately where it’s expected to grow to around $800m by 2025.

The firms acting as financial advisors for the two sides are Goldman Sachs (BP) and Citigroup (TA).

BP Overview

British Petroleum (BP) is a British multinational oil and gas company headquartered in London. The company was founded in 1909 and predominantly engage in exploration, production, distribution and marketing of oil and gas. Operating in over 70 countries worldwide, with its primary operations in Europe and North America, it is one of the largest oil and gas companies in the world with a market capitalization of $98.36bn as of September 2022. In recent years, BP has put priority on transforming its business into one with a greater focus on renewable energy and low-carbon technologies, with ambitious goals of becoming net-zero by 2050.

BP’s business model can be broadly divided into three sections: Upstream, Downstream, and Rosneft. Upstream involves the exploration and production of oil and gas. Downstream is responsible for refining, marketing, and trading their petroleum products. Rosneft refers to BP’s strategic partner in Russia.

Founded: 1909

Number of employees: 67,600

EV: $134.5bn

LTM Revenue: $239.7bn

LTM EBITDA: $54.3bn

Market Cap: $107.67

TravelCenters of America Overview

TravelCenters of America (TA) is a publicly-traded company, headquartered in Ohio. The company is an operator of truck stops and travel centres in the US, providing a wide range of amenities to both professional drivers and as well the general travelling public, including fueling, truck repair and maintenance. TA approximately 270 full-service locations in 44 US states, and employs nearly 20,000 people (2021).

TA’s business model places a focus on providing a one-stop-shop for professional drivers and motorists by offering a variety of amenities to meet their needs while on the road. These include convenience stores and showers.

Founded: 1972

Number of employees: 20,000

EV: $3.1bn

LTM Revenue: $10.8bn

LTM EBITDA: $362.6mn

Market Cap: $1.3bn

Industry Insight

One significant trend in the energy industry is the growing focus on renewable energy sources, such as wind, solar and biofuels. BP has recently announced its commitment to reach net-zero by 2050 whereby they are investing heavily in renewable energy projects to achieve this goal. Through the acquisition of TA, BP will be able to enable growth in EV charging, biofuels and RNG, and later hydrogen. This will help their customers decarbonize their vehicles, growing their mobility footprint across the US. In 2022, the growth rate of renewable energy in the US slowed down due to rising costs, driven by supply chain disruptions, trade policy uncertainties, inflation and increasing interest rates. Growth in the renewable energy industry is set to be accelerated in 2023, but this has its own set of problems. Growing demand in 2023 has the potential to exacerbate supply chain constraints and exacerbate supply chain bottlenecks, further increasing prices.

The travel centre industry has been heavily influenced by the broader macroeconomic environment. In particular, fuel prices have been a significant expense for trucking companies and travel centre operators. A combination of Russia’s invasion of Ukraine being a key driver of rising prices of fuel and reduced demand for travel and fuel as a result of COVID (travel restrictions and lockdowns), has dampened demand for the travel centre industry. Nevertheless, as travel restrictions have eased, demand is slowly returning to normal levels.

BP’s acquisition of TA is an indication of a new area of business interest for BP, and the energy industry, to diversify its revenue streams and expand its business into new areas. By entering the travel industry, BP can leverage its expertise in fuel and retail operations to capitalise on the growing demand for travel and retail services. This move is consistent with BP’s long-term strategic objectives of transitioning to a low-carbon future, as it seeks to become a provider of sustainable energy solutions.

Strategic rationale

The motivation behind BP’s acquisition of TA largely stems from BP’s strategic push towards lower carbon mobility alternatives, focussing greatly on EV charging, bioenergy, renewables, hydrogen and carbon capture. Amid the Biden administration’s efforts to expand the domestic vehicle charging network, BP shows clear enthusiasm in investing more into sustainable growth areas. This can be evidenced by several of BP’s recent initiatives. Firstly, BP recently announced plans to invest $1bn in EV charging across the US by 2030. Combining this initiative with TA’s recent plans to open 1000 charging stations over the next five years, the acquisition appears to be a strategic move on behalf of BP. TA’s network of highway locations strategically complements BP’s existing off-highway convenience and mobility business. Hence by combining their strengths, this will enable TA and BP to offer motorists a seamless nationwide service.

Additionally, BP’s global scale and reach will bring numerous benefits over time, including improved fuel and biofuel supply, alongside more convenient options for consumers. Moreover, BP acquired US biogas producer Archaea in 2022 for $4.1bn. Taking both acquisitions into account, BP is set to provide options to explore new mobility offerings for customers and improved biofuel supplies. BP aims for half of their cumulative $55-65 billion translation growth engine investment will go towards their strategic transition growth engines of convenience, bioenergy and EV charging.

Overall, the transaction sets BP up in good stead to expand its retail network of highway sites, allowing them to diversify its revenues by adding TA’s higher margin convenience store business.

Long-Term Prospects

BP’s acquisition of TA has met all the conditions required for approval, as TA’s shareholders support the deal at an 84% premium to the unaffected share price. The acquisition is expected to proceed smoothly, with no significant legal or administrative approval issues anticipated. Additionally, any antitrust opposition is just as unlikely as the US highway travel centre market is highly fragmented. Nevertheless, macroeconomic factors need to come into consideration to assess whether high energy and fuel prices could pose a threat to the acquisition's synergies as it is still uncertain whether prices will return to pre-war levels.

Overall, BP’s acquisition of TA is a strategic move for the company as it seeks to expand its presence in the US market, utilising TA’s status of being the third largest truck stop and travel centre operator. The acquisition is set to add to BP’s target of $1.5bn in EBITDA by 2025 in its convenience and EV charging business, and £4bn in EBITDA by 2030. In general, the acquisition of TA puts BP in a favourable position to expand its operations in the US market and take advantage of opportunities for growth during the transition to a low-carbon economy.

Written by Lili Jing (London School of Economics and Political Science)

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