By Rhys Meredith, Aaryan Upadhyay, Aditi Singh, Dominic Zhu, Salah Baaziz and Ben Jackson (University of Bristol) ; Heather Leung, Annabel Lai, Edward Fung, Freya Zhang (HKUST)
Photo: Ernest Ojeh (Unsplash)
Overview of the deal
Acquirer: Motor Fuel Limited (Motor Fuel Group)
Target: Wm Morrison Supermarkets Limited (Morrisons)
Total Transaction Size: $3.2 billion (£2.5 billion)
Announced Date: 01/30/2024
Expected Close Date: H1 2024
Target Advisor: Freshfields Bruckhaus Deringer LLP (Legal)
Acquirer Advisor: HSBC and Rabobank International (Financial), Eversheds Sutherland and Kirkland & Ellis (Legal)
On January 30, 2024, Motor Fuel Limited agreed to acquire 337 Morrisons petrol forecourts and over 400 Ultra-Rapid EV sites for £2.5 billion. The transaction includes cash and equity components, establishing a strategic alliance. Morrisons will obtain a 20% equity stake in MFG and establish long-lasting commercial and supply agreements, underlining the partnership's commitment.
Through this agreement, MFG will establish itself as a key player in the UK's ultra-rapid EV charging sector, operating over 1,300 sites and expanding its convenience store presence to become the nation's second-largest operator. With a £400 million EV rollout commitment by 2030, MFG plans to electrify approximately 800 sites with numerous Ultra-Rapid chargers, facilitated by this strategic partnership.
The proposed transaction is also expected to yield significant synergies in fuel retail and related services, along with offering scale advantages and growth prospects for both parties. This will positively impact UK drivers and shoppers at fuel stations and stores, while also supporting the country's transition away from new diesel and petrol car sales by 2035, in line with the government's aim to achieve net zero emissions by 2050.
The deal is anticipated to conclude in the first half of 2024. Subsequently, proceeds from the sale will bolster investments in grocery and food-making ventures while enhancing the company's capital structure.
“This strategic acquisition, and the resulting partnership with the highly respected Morrisons brand, is the next major growth investment for MFG. It is anchored in the potential for us to accelerate the roll-out of Ultra-Rapid EV charging infrastructure across the UK while also giving customers a first-class retail offer.” - William Bannister, CEO (MFG)
Company Details (Acquirer - Motor Fuel Group)
Motor Fuel Group (MFG) is the largest forecourt convenience retailer in the UK with over 900 sites, ranking fifth largest retailer in terms of store count nationwide. It’s comprehensive range of services includes a dual-fuel approach, a valeting service, a diverse selection of retail offerings and "food to go" options, as well as online delivery lockers and designated areas for business breaks. Additionally, the MFG management team has an impressive and continuous acquisition track record, from 2014’s acquisition of Murco Petroleum’s retail assets and 90 Shell-branded stations in 2015 to the acquisitions of six forecourts in 2020 and six high-volume BP-branded sites in 2021.
Founded: 2011
Headquartered in: St Albans, Hertfordshire, UK
CEO: William Bannister
Number of employees: ~1000
Market Cap: N/A (privately held)
Company Details (Target - Morrisons)
Morrisons, established in 1899, is the UK's fourth-largest grocery retailer as of 2023; employing 110,000 people with approximately 500 stores nationwide. Based in Bradford UK, Morrisons holds a strong reputation for its focus on fresh, locally sourced produce. Over 70% of its meat, poultry, and eggs come from British farms, partnering with over 3,000 local suppliers.
Morrisons has expanded its partnerships with tech companies like Ocado for online services, Deliveroo for on-demand grocery delivery and Costa for its fuel services. These partnerships expand their reach and cater to evolving customer preferences, particularly the surge in online grocery shopping, which increased by over 10% since 2019.
The company also offers convenient services like online shopping with home delivery and click-and-collect options. Besides its grocery services, the company also operates fuel stations across 337 locations in the UK, implementing its loyalty programmes, reaching over 6 million active members nationwide. This one-stop shop approach, combined with competitive pricing, solidified their position as a major player in the UK fuel market.
Morrisons is set to maintain its food and grocery supply across the 337 petrol forecourts sold, with a future goal of expanding its wholesale distribution into the MFG estate.
Founded in 1899, headquartered in Bradford, England
CEO: Rami Baitiéh
Number of employees: 110,000 (2021)
LTM Revenue: $22.2bn
LTM EBITDA: $1.2bn
(1 GBP = 1.21 USD on 29/10/2023)
Projections and Assumptions
Short-term consequences
In the short-term, this acquisition presents an excellent opportunity for MFG to leverage its fuel retail expertise at a significantly larger scale. Integrating over 300 petrol forecourts is complex, it opens the door to important cost and revenue synergies if managed smoothly. In fact, the deal is expected to be accretive to MFG's earnings, as MFG's acquisition is analogous to the successful Asda/EG Group deal.
Furthermore, the deal will expand MFG's offerings through plans to roll out 800 ultra-fast EV chargers over the next five years. This positions MFG as a leader in low-carbon fuel provision and capitalizes on strong EV market growth and absorbing Morrisons chargers immediately increases MFG's network scale to seize first-mover advantages. Successfully meeting expansion targets would further enhance profitability prospects in the coming years.
Understand that although the expanded geographic coverage through Morrisons' 337 UK forecourts opens new growth areas, rapidly accelerating nationwide charging installations within ambitious timelines will test MFG’s execution capabilities. Missing critical deadlines could allow competitors to seize valuable market positions, undermining MFG's ability to capture projected shareholder value through anticipated earnings accretion.
For employees, retaining existing pay and roles will alleviate near-term uncertainty, but cultural integration presents risks given MFG's franchise model. Simultaneously expanding network infrastructure while transitioning the workforce adds complexity but can be overcome with management capabilities.
In summary, investors will closely track the multitude of changes. Hence, meeting integration milestones is crucial for MFG to validate management projections and maintain shareholder support. The first year will be instrumental for MFG in overcoming formidable implementation challenges to unlock projected financial benefits through successful integration delivering near-term synergies. Overall success depends on navigating changes seamlessly within established timeframes.
Long-term Upsides
The core rationale for CD&R with this move is to utilize scale opportunities within its portfolio and consolidate operational efficiency of both businesses in their respective areas of focus. For Morrisons, this means a capital injection (approx. GBP 1.8 - 1.9 billion cash proceeds) and pay down of debt, resulting in savings on interest payments thought to be a significant amount in the medium term. Accordingly, this will strengthen Morrisons’ balance sheet and provide a short term cash flow boost. This ensures support for its core businesses of food retail and manufacturing, which in the past 18 months has suffered from a loss in market share caused by the inflationary environment and resultant high costs.
A stronger balance sheet for Morrisons and reduced pressure from subsequential debt payments will allow it to invest in streamlining its food manufacturing, wholesale and retail businesses. MFG, which is a leading operator of forecourts in the UK, will increase the number of sites it operates, already over 900. The aim is for MFG to offer lower prices at forecourts attached to Morrisons supermarkets by realizing economies of scale, ultimately creating a more attractive package from the consumer point of view, thereby also driving sales at Morrisons stores in the long term. The latter will continue to maintain a 20% stake in MFG which will be useful as the firm becomes more profitable.
This is part of MFG’s larger electrification plan of installing ultra-rapid chargers, the priority for the rapidly expanding entity in recent years as net-zero goals have come into focus. Already the leader, this boost in network reach will allow it to strategically serve range-conscious electric vehicle (EV) drivers more so than competitors can manage. Given its concerted investment plan amounting to £400m between 2021 and 2030, MFG is best placed to create a national level EV charging ecosystem and capitalize on the mobility transition underway.
Risks and Uncertainties
The acquisition of Morrisons' forecourts by Motor Fuel Group (MFG) presents several risks and uncertainties that need to be carefully navigated. Firstly, integrating Morrisons' operations with MFG's will require significant effort to align organizational structures and optimise supply chains. Any operational challenges in this process could impact the efficiency and profitability of the combined business.
Secondly, the financial implications of the £2.5bn deal are substantial; while the investment holds promise for long-term growth, the upfront expenditure and ongoing operational costs may strain financial resources and affect cash flow management.
Furthermore, the competitive landscape in the EV charging market introduces uncertainties. Rapid technological advancements and shifting consumer preferences may alter the demand for EV charging services, potentially impacting revenue projections for MFG.
Moreover, compliance with evolving regulations, particularly in the energy and transportation sectors, is critical. Failure to meet regulatory requirements could lead to legal disputes or regulatory hurdles, disrupting business operations and delaying the realisation of synergies.
Additionally, macroeconomic factors such as economic downturns or fluctuations in energy prices pose challenges. These external factors could influence consumer spending patterns and impact the demand for both fuel and EV charging services.
"It's fantastic to see MFG partnering with Morrisons to deliver reliable, high-powered charging for electric car drivers across the country. This acquisition of sites for EV charging amounts to a significant expansion of MFG EV Power's Ultra-Rapid network and is undoubtedly a win for UK motorists. MFG's fast-paced rollout of charging hubs is certainly impressive, while the increased availability of ultra-rapid charging capabilities across the UK will contribute to greater adoption of vehicles, which of course pollute less and support our collective efforts to reduce harmful carbon emissions.” - Melanie Shufflebotham, Co-founder & COO (Zapmap, UK’s leading eMobility Service provider)