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Acquisitions | 9 Months Ended
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Sep. 30, 2023
Business Combinations [Abstract] |
Acquisitions | 3. Acquisitions Transit Energy Group, LLC On March 1, 2023, the Company completed the acquisition of certain assets from Transit Energy Group, LLC and certain of its affiliated entities (collectively, “TEG”) pursuant to a purchase agreement entered on September 9, 2022, as amended (the “TEG Purchase Agreement”), including (i) 135 Company-operated convenience stores and gas stations, (ii) fuel supply rights to 181 dealer locations, (iii) a commercial, government, and industrial business, including certain bulk plants, and (iv) certain distribution and transportation assets, all in the southeastern United States (the “TEG Acquisition”). The purchase price for the TEG Acquisition was approximately $370 million, as adjusted in accordance with the terms of the TEG Purchase Agreement, plus the value of inventory at the closing, of which $50 million was deferred and payable in two annual payments of $25 million, which the Company may elect to pay in either cash or, subject to the satisfaction of certain conditions, shares of common stock (the “Installment Shares”), on the first and second anniversaries of the closing. Pursuant to the TEG Purchase Agreement, at closing, ARKO and TEG entered into a registration rights agreement, pursuant to which ARKO agreed to prepare and file a registration statement with the SEC, registering the Installment Shares, if any, for resale by TEG. The Company paid approximately $81.7 million of the non-deferred purchase price including the value of inventory and other closing adjustments, of which $55.0 million was financed with the Capital One Line of Credit (as defined in Note 4 below). An affiliate of Oak Street Real Estate Capital Net Lease Property Fund, LP (including its affiliates, “Oak Street”), under the Company’s standby real estate purchase, designation and lease program agreement with Oak Street, dated as of May 3, 2021 (as amended, the “Program Agreement”), paid the balance of the non-deferred purchase price for fee simple ownership in 104 sites. At the closing, pursuant to the Program Agreement, the Company entered into a master lease with Oak Street for the sites Oak Street acquired in the transaction under customary lease terms. For accounting purposes, the transaction with Oak Street was treated as a sale-leaseback. Because the sale-leaseback was off-market, a financial liability of $51.6 million was recorded, resulting in interest expense recognized over the lease term. Additionally, right-of-use assets and operating lease liabilities of approximately $131.3 million were recorded in connection with the operating lease, after reducing for accounting purposes from the contractual lease payments the amount attributable to the repayment of the additional financing. The details of the TEG Acquisition were as follows:
|  | Amount |
|  | (in thousands) |
Fair value of consideration transferred: |  |  |
Cash |  | $ | 26,702 |
GPMP Capital One Line of Credit |  |  | 55,000 |
Liability resulting from deferred purchase price |  |  | 45,845 |
Receivable from TEG |  |  | (62 | )
Consideration provided by Oak Street |  |  | 258,019 |
Total consideration |  | $ | 385,504 |
Assets acquired and liabilities: |  |  |
Cash and cash equivalents |  | $ | 379 |
Inventory |  |  | 20,259 |
Other assets |  |  | 1,304 |
Property and equipment, net |  |  | 268,660 |
Intangible assets |  |  | 20,000 |
Right-of-use assets under operating leases |  |  | 69,254 |
Environmental receivables |  |  | 2,664 |
Deferred tax asset |  |  | 19,135 |
Total assets |  |  | 401,655 |
Other liabilities |  |  | (2,087 | )
Environmental liabilities |  |  | (2,939 | )
Asset retirement obligations |  |  | (10,875 | )
Operating leases |  |  | (57,569 | )
Total liabilities |  |  | (73,470 | )
Total identifiable net assets |  |  | 328,185 |
Goodwill |  | $ | 57,319 |
Consideration paid in cash |  | $ | 81,702 |
Consideration provided by Oak Street |  |  | 258,019 |
Less: cash and cash equivalent balances acquired |  |  | (379 | )
Net cash outflow |  | $ | 339,342 |
The initial accounting treatment of the TEG Acquisition reflected in these interim financial statements is provisional as the Company has not yet finalized the initial accounting treatment of the business combination, and, in this regard, has not finalized the valuation of some of the assets and liabilities acquired and the goodwill resulting from the TEG Acquisition, mainly due to the limited period of time between the TEG Acquisition closing date and the date of these interim financial statements. Therefore, some of the financial information presented with respect to the TEG Acquisition in these interim financial statements remains subject to change. The Company included identifiable tangible assets and identifiable liabilities at their respective fair values based on the information available to the Company’s management on the TEG Acquisition closing date, including, among other things, a preliminary valuation performed by external consultants for this purpose. The useful life of both the wholesale fuel supply contracts and the trade name was estimated at five years. As a result of the preliminary accounting treatment of the TEG Acquisition, the Company recorded goodwill of approximately $57.3 million, all of which was allocated to the GPMP segment attributable to the opportunity to add a significant amount of volume to the GPMP segment. None of the goodwill recognized is tax deductible for U.S. income tax purposes. Acquisition-related costs amounting to approximately $0.4 million and $3.3 million have been excluded from the consideration transferred and have been recognized as an expense within other expenses, net in the condensed consolidated statements of operations for the three and nine months ended September 30, 2023, respectively. Approximately $0.3 million of acquisition-related costs were recognized for the three and nine months ended September 30, 2022. Results of operations for the TEG Acquisition for the period subsequent to the acquisition closing date were included in the condensed consolidated statement of operations for the three and nine months ended September 30, 2023. For the period from the TEG Acquisition closing date through September 30, 2023, the Company recognized $564.3 million in revenues and $2.3 million of net loss related to the TEG Acquisition. For the three months ended September 30, 2023, the Company recognized $247.2 million in revenues and $0.4 million of net income related to the TEG Acquisition. WTG Fuels Holdings, LLC On June 6, 2023, certain of the Company’s subsidiaries completed the acquisition of certain assets from WTG Fuels Holdings, LLC and certain other sellers party thereto (collectively, “WTG”) pursuant to an asset purchase agreement entered on December 6, 2022, including (i) 24 company-operated Uncle’s convenience stores located across Western Texas, and (ii) 68 proprietary GASCARD-branded cardlock sites and 43 private cardlock sites for fleet fueling operations located in Western Texas and Southeastern New Mexico (the “WTG Acquisition”). The purchase price for the WTG Acquisition was approximately $140.0 million, plus the value of inventory at the closing. The Company paid approximately $29.9 million of the purchase price including the value of inventory and other closing adjustments, of which $19.2 million was financed with the Capital One Line of Credit (as defined in Note 4 below). Oak Street, under the Program Agreement, paid the balance of the purchase price for fee simple ownership in 33 properties. At the closing, pursuant to the Program Agreement, the Company entered into master leases with Oak Street for the sites Oak Street acquired in the transaction under customary lease terms. For accounting purposes, the transaction with Oak Street was treated as a sale-leaseback. Because the sale-leaseback was off-market, a financial liability of $28.8 million was recorded, resulting in interest expense recognized over the lease term. Additionally, right-of-use assets and operating lease liabilities of approximately $49.0 million were recorded in connection with the operating lease, after reducing for accounting purposes from the contractual lease payments the amount attributable to the repayment of the additional financing. The details of the WTG Acquisition were as follows:
|  | Amount |
|  | (in thousands) |
Fair value of consideration transferred: |  |  |
Cash |  | $ | 11,471 |
GPMP Capital One Line of Credit |  |  | 19,200 |
Consideration provided by Oak Street |  |  | 115,041 |
Total consideration |  | $ | 145,712 |
Assets acquired and liabilities: |  |  |
Cash and cash equivalents |  | $ | 60 |
Inventory |  |  | 5,694 |
Other assets |  |  | 149 |
Property and equipment, net |  |  | 128,396 |
Intangible assets |  |  | 14,800 |
Right-of-use assets under operating leases |  |  | 1,812 |
Environmental receivables |  |  | 4 |
Total assets |  |  | 150,915 |
Other liabilities |  |  | (598 | )
Environmental liabilities |  |  | (136 | )
Asset retirement obligations |  |  | (2,730 | )
Operating leases |  |  | (1,739 | )
Total liabilities |  |  | (5,203 | )
Total identifiable net assets |  |  | 145,712 |
Goodwill |  | $ | — |
Consideration paid in cash |  | $ | 30,671 |
Consideration provided by Oak Street |  |  | 115,041 |
Less: cash and cash equivalent balances acquired |  |  | (60 | )
Net cash outflow |  | $ | 145,652 |
The initial accounting treatment of the WTG Acquisition reflected in these interim financial statements is provisional as the Company has not yet finalized the initial accounting treatment of the business combination, and, in this regard, has not finalized the valuation of some of the assets and liabilities acquired and the goodwill resulting from the WTG Acquisition, mainly due to the limited period of time between the WTG Acquisition closing date and the date of these interim financial statements. Therefore, some of the financial information presented with respect to the WTG Acquisition in these interim financial statements remains subject to change. The Company included identifiable tangible assets and identifiable liabilities at their respective fair values based on the information available to the Company’s management on the WTG Acquisition closing date, including, among other things, a preliminary valuation performed by management. The useful life of the contracts related to the third-party cardlock sites, the customer relationships related to the proprietary cardlock sites and the proprietary fuel cards, the wholesale fuel supply contracts and the trade name was each estimated at five years. The Company’s preliminary accounting treatment of the WTG Acquisition resulted in no goodwill being recorded. Acquisition-related costs amounting to approximately $0.1 million and $2.2 million have been excluded from the consideration transferred and have been recognized as an expense within other expenses, net in the condensed consolidated statements of operations for the three and nine months ended September 30, 2023, respectively. No material acquisition-related costs were recognized for the three and nine months ended September 30, 2022. Results of operations for the WTG Acquisition for the period subsequent to the acquisition closing date were included in the condensed consolidated statement of operations for the three and nine months ended September 30, 2023. For the period from the WTG Acquisition closing date through September 30, 2023, the Company recognized $68.9 million in revenues and $0.6 million of net income related to the WTG Acquisition. For the three months ended September 30, 2023, the Company recognized $54.0 million in revenues and $0.4 million of net income related to the WTG Acquisition. Speedy Acquisition On August 15, 2023, the Company acquired from a third party seven company-operated convenience stores located in Arkansas and Oklahoma (the “Speedy Acquisition”). Prior to the acquisition, the Company had supplied fuel to these sites, which had been operated by an independent dealer. The consideration at closing was approximately $13.7 million including cash and inventory in the stores on the closing date, of which approximately $10.4 million was paid by Oak Street under the Program Agreement for fee simple ownership in three of the properties. At the closing, pursuant to the Program Agreement, the Company entered into a master lease with Oak Street for the sites Oak Street acquired under customary lease terms. For accounting purposes, the transaction with Oak Street was treated as a sale-leaseback and the Company recorded right of use assets and operating lease liabilities of approximately $8.8 million in connection therewith. As of the closing, the Company leases the remaining four sites from the seller and Oak is expected to purchase the fee simple ownership in these sites from the seller, for approximately $10.3 million, within twenty months from the closing of the Speedy Acquisition, and then lease these sites to the Company. Pride Convenience Holdings, LLC On December 6, 2022, the Company acquired all of the issued and outstanding membership interests in Pride Convenience Holdings, LLC, which operated at closing 31 convenience stores and gas stations in Connecticut and Massachusetts (the “Pride Acquisition”). In the second quarter of 2023, the Company updated the initial accounting treatment of the Pride Acquisition, including the valuation of some of the assets acquired, liabilities assumed and the goodwill resulting from the acquisition. As a result, the Company primarily reduced property and equipment by approximately $4.7 million, increased accounts payable and other liabilities by a net $1.0 million, and increased the deferred tax asset by approximately $1.0 million. The adjustments to the assets acquired and liabilities assumed resulted in an increase in goodwill of approximately $3.1 million, of which $0.4 million was allocated to the GPMP segment and the remainder was allocated to the retail segment attributable to the opportunities to expand into new geographic locations. These adjustments resulted in a reduction in depreciation and amortization expenses recorded, approximately $0.2 million that related to amounts recorded for the year ended December 31, 2022 and approximately $0.6 million that related to the three months ended March 31, 2023. Impact of Acquisitions (unaudited) The unaudited supplemental pro forma financial information presented below was prepared based on the historical information of the Company and the acquired operations and gives pro forma effect to the acquisitions using the assumption that the Speedy Acquisition, the WTG Acquisition, the TEG Acquisition, the Pride Acquisition and the acquisition of 184 Quarles cardlock sites and 46 dealer locations on July 22, 2022 (the “Quarles Acquisition”) had occurred at the beginning of each period presented below. The unaudited supplemental pro forma financial information does not give effect to the potential impact of current financial conditions, any anticipated synergies, operating efficiencies or cost savings that may result from the acquisitions or any integration costs. The unaudited pro forma financial information is not necessarily indicative of what the actual results of operations would have been had the acquisitions occurred at the beginning of each period presented below nor is it indicative of future results.
|  | For the Nine Months Ended September 30, |
|  | 2023 |  |  | 2022 |
|  | (unaudited) |
|  | (in thousands) |
Total revenue |  | $ | 7,603,426 |  |  | $ | 8,887,740 |
Net income |  |  | 27,417 |  |  |  | 55,843 |

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