Market Reacts Positively to BP's TA Acquisition
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Industry analysts reacted favorably to the news that TravelCenters of America is being acquired by BP Products North America, noting that each company brings elements to the table that help the proposed combination align.
“I feel like only a big and deep-pocketed entity such as BP would’ve been successful at such a deal because you had to get basically three entities to sign off,” said B. Riley Securities analyst Bryan Maher. “You had to get TA, its board and its shareholders to sign off. You had to get [Service Properties Trust] to sign off because they own 178 of these things, and the trade names and the trademarks, and you had to get RMR to sign off, which manages [Service Properties Trust] and does certain business services for TA.”
The RMR Group owns 4.1% of the company’s outstanding shares while Service Properties Trust owns 7.8%. Both companies agreed to vote their shares in favor of the sale. RMR will have its management agreement terminated at the closing of the transaction. The termination fee is currently estimated to be approximately $44 million.
BP North America on Feb. 16 announced a deal to acquire TravelCenters in a $1.3 billion all-cash deal that valued its stock at $86 per share. TravelCenters stock price jumped to $84.47 that day, up from $49.44 the day prior.
“If somebody was just kind of coming along with a half a billion or a billion bucks and tried to make a run at this thing, it would’ve been much more challenging,” Maher said. “But somebody as big as BP, I think, made it compelling enough for all three entities to get the deal done.”
TravelCenters CEO Jonathan Pertchik said in a news release that the deal, “is a result of the successful implementation of our turnaround and strategic plans. We have improved our core travel center business, expanded our network, launched eTA to prepare for the future of alternative fuels and improved our operating and financial results.”
Pertchik
Barclays analyst Lydia Rainforth wrote in a report, “The transaction is set to be [free cash flow] positive on a per share basis by 2024, and the cost is within the $16-18 [billion] capital frame established for this year.” She added, “BP expects to be able to grow EBITDA on a pre-lease expense to $800 million in 2025 through three potential areas — organic growth, biofuels and fuel supply, and fleet convenience and opex synergies. The group expects the TA business to be accretive on a FCF per share basis in 2024. The returns anticipated are in excess of 15%.”
The sales price per share represents an 84.2% premium on the average trading price over the 30 days ended Feb. 15. Analysts noted that the acquisition price is also roughly six times earnings before interest, taxes, depreciation, and amortization (EBITDA) compared to the trailing 12 months in the third quarter.
“I’ve always thought that the stock was cheap with very few exceptions,” Maher said of TA shares. “Trading at sub six times EBITDA, I felt to be kind of ridiculous.”
He added, “Prior management before Jonathan Pertchik came had their ups and downs.”
Pertchik has been managing director and CEO of the travel center company since 2019. He is also executive vice president of RMR.
BP North America is a subsidiary of the British multinational oil and gas company BP.
TravelCenters will enter into amended lease agreements with Service Properties Trust to establish long-term real estate access as part of the transaction.
“I think that BP was ready, willing and able to address the needs of all three entities involved here,” Maher said. “Had they not been able to do that, had they not been able to meet the needs of any one of those three, I doubt that they would’ve had a deal. So, it seemed like BP knew where they needed to get to and was willing to do that.”
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