The UK’s largest service station operator MRH has been acquired by the second biggest - MFG - in a £1.2bn deal.The acquisition was announced today and will create the UK’s number one operator by number of sites and number two by volume. MFG is owned by funds managed by Clayton, Dubilier & Rice.

Although there had been much speculation about such a deal, the announcement came as a surprise to many who had thought MRH was testing the water ahead of a possible IPO. Last week it announced a significant strengthening of its management team, including the appointment Halfords Group chairman Dennis Millard as chairman of the MRH group board.

MFG and MRH together will operate more than 900 sites, which are predominantly company-owned and franchisee-operated and manage third-party fuel, convenience, and foodservice brands. These include fuel brands BP, Esso, Jet, Murco, Shell and Texaco and retail brands Budgens, Costa Coffee, Greggs, Spar and Subway, as well as the MRH-owned brand, Hursts. On a combined basis, MFG and MRH sold approximately 3.6 billion litres of fuel in 2017. 

Alasdair Locke, chairman of MFG, will remain chairman of the combined business. Sir Terry Leahy, a senior advisor to CD&R’s funds and former chief executive of Tesco, will continue to serve on the board of directors and chair the executive committee of the board. 

“Both MFG and MRH operate in a stable market and are highly focused on convenience with a track record of consistent growth and commitment to operational excellence,” said CD&R partner Marco Herbst. “As petrol forecourts transition to customer-focused convenience and food-to-go hubs for local communities, this platform is distinctly positioned to meet this growing demand across the UK.” 

Alasdair Locke, chairman of MFG, said: “This is a transformational milestone for both companies that we believe will make us an even stronger partner for fuel brands and retail customers seeking convenient foodservice options. We are excited to welcome the MRH team, who share a commitment to growth and innovation, as we work together to consolidate a highly-fragmented market and continue our expansion of retail offerings across the combined estate.” 

CD&R partner David Novak commented: “These characteristics align with our retail investment strategy and make this a compelling platform with exciting prospects for continued success. It is another example of our European strategy to back strong management teams to build market-leading companies serving high growth markets.” 

William Bannister, MFG’s chief executive officer said: “This acquisition gives us the opportunity to develop our winning forecourt formula and will enable us to achieve our long-stated objective to be the UK’s most dynamic and profitable independent forecourt operator.”

Prior to this agreement, MRH was backed by Lone Star Fund IX. Karen Dickens, chief executive of MRH said: “Over the last few years we have developed MRH into one of the leading players in the sector thanks to the hard work and focus of the MRH team. The combination of MRH and MFG will create the UK’s leading service station group and one of the largest in Europe. We are delighted to have reached this agreement and look forward to an exciting future together.”

Donald Quintin, President, Europe, Lone Star, commented: “We’re pleased to have found in MFG the right partner for MRH’s next stage of development. It’s been a pleasure to work with Karen and the whole MRH team over the last few years, and we wish them every success for the future.”

The transaction is expected to close in the second quarter of 2018, subject to customary regulatory approvals. 

Goldman Sachs International, RBC Capital Markets and Investec Bank plc served as M&A advisors, and Clifford Chance and Debevoise & Plimpton served as legal advisors to MFG. MFG received due diligence support from Alix Partners, Ernst & Young and McKinsey & Company. 

Lazard served as M&A advisers, and Weil, Gotshal & Manges provided legal advice to MRH. 

MRH also received due diligence support from PwC and OC&C. Charles Russell Speechlys provided advice to MRH management. 

MFG management were advised by Dorsey & Whitney (Europe) LLP and Wyvern Partners.