The Kotler Effect
With more than 600 stores now under its watch, GPM Investments lets the industry know it’s here to stay.
“The investors that I brought in got an offer. The offer was tens of millions of dollars in profit in a very short period of time, and they took it,” Kotler says. “We made close to 10 times on our equity, and when you do 10 times on your equity, you can’t say no.”
Thereafter, while Kotler dealt with other businesses in Israel and Germany, he kept tabs on the c-store industry and GPM Investments.
“From the day I sold my interest in GPM, I kept in touch with the company,” he says, “and when I saw the opportunity [to get back involved], I grabbed the opportunity with two hands.”
That opportunity came in 2011.
Almost five years after Kotler and his investors had cashed in, GPM reportedly was again in tough financial straits, unable to fund the acquisition-based strategy and reputation on which the company had been founded.
While some sources suggest GPM Investments was close to filing bankruptcy again in 2011 after years of poor management and poor retailing (“They narrowly avoided the banks,” says one financial insider), Kotler and his team say that’s patently untrue.
“No, it was not the company,” Kotler insists. “[GPM] wasn’t in a financial crisis from a company standpoint. The owner of the company (and Israeli businessman) borrowed money from a hedge fund, and the interest rate from the hedge fund was [onerous]. It was totally not related to the business.”
COO Giacobone, Kotler’s second in command at GPM, agrees.
“When our ownership was in Israel, we were doing our own thing here,” says Giacobone, who joined GPM in 2005 as part of its acquisition of DB Marts. “We were operating well throughout that time, but we were tight when it came to maintenance and capital expenditures and growth in general.”
Instead, much of the income GPM was bringing in was going to pay the ownership’s interest rates rather than being invested in the company.
“Revenue-wise, GPM was a solid company; profitability was growing year after year,” Kotler says.
In a sense, the tight purse strings were good for the company, forcing it to spend wisely. When it did invest, it was in infrastructure and technology.
“We have one of the best operating platform [in the industry]. Management spent money on the right items,” Kotler says. “That shows you how good the company is.
Companies in those situations—when the shareholders are in trouble—those companies usually have issues. This company was solid; everything was running smoothly. I’m sure they had a hard time in terms of reporting [to the parent company], but it never affected operations.”
It did, however, give Kotler the opportunity to get a foothold in his old company, buying back in through a $50 million injection of credit, paying off the hedge fund and taking the top role at the company in August 2011.
And for a self-described control freak with a history as the “financial guy,” is CEO the right role for Kotler?
“For the past two years, I’ve lived, dreamed and eaten just convenience stores,” he says. “I got tired of buying a company, selling a company, buying a building, selling a building. … Today we have a company with over $2 billion in revenue and over 600 stores. So yeah, I think I can consider myself a convenience-store guy.”
The CEO title, he says, is more to show employees that the owner is someone who cares about this company. “Even when I’m not here, I’m connected,” he says.
Giacobone backs him up: “I agree. He’s involved in marketing and operations, and he understands it all. He’s not just a financial guy.”
“That’s not to say I’m not interested in making money,” Kotler adds quickly, “but I want to take this company to the next level.”
Doubling Store Count
Kotler’s passion—and his entire team’s passion—for GPM is evident.
Having returned to Richmond at midnight from Wilmington, N.C., where he was working on the integration of the 263 sites purchased from VPS, Kotler met with CSP following a lengthy conference call with investors in Israel, illustrating the 24-7 drive of the 39-year-old.
“I had a lot of hope when Arie came back,” Giacobone says. “He’s obviously ambitious and dynamic, and he’s got a lot of energy. And he sincerely wants to do what’s right for the company, grow the company. … And he has money, which is something we didn’t have for a long time.”
Adds the financial insider, who requested anonymity, “I think he’s really smart. I think he’s the right guy and well suited to take [GPM] to the next level.”
And Kotler has opened the company’s wallet wide since returning to lead. While GPM grew by fewer than 100 stores—due largely to skyrocketing multiples on purchases, followed by a collapsing capital market, he says—in Kotler’s first go-around with the company, he’s made a much quicker and larger impression in the past two years. Starting with 213 stores in 2011, the chain stands at 615 stores today, mostly due to the VPS acquisition, which closed Aug. 5.
The VPS purchase gave the retailer new and stronger presences in North Carolina, South Carolina, Tennessee and Virginia.
“Contiguous growth is always easiest, but we evaluate every single deal that comes in here,” Giacobone says. While the company wasn’t specifically looking to nearly double its store count, the deal fit GPM’s ultimate strategy: “Growth is our goal.”
With the VPS deal, GPM took on six additional store brands—Scotchman, Young’s, Li’l Cricket, Everyday Shop, Cigarette City and BreadBox—via a separate deal underway through VPS at the time. At the same time, GPM also bought five Get & Zip c-stores from Hurst Harvey Oil Inc. in the northern neck of Virginia. For the time being, at least, those names will continue to stand.