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On the Block: An Insider's View of Selling a Chain

For a variety of reasons, including a maturing industry and hardships brought on by the recession, many c-store operators are looking to exit the industry. One, Appalachian Oil Co. (Appco), was placed on the block after filing for Chapter 11 protection in February.

NRC Realty Advisors, which is handling the sale, has worked through the spring to build a consensus among the various Appco constituencies, including landlords, senior lenders and the committee of unsecured lenders, according to Andy Webber, Appco's chief restructuring officer, as well an officer of NRC and founder of Corner Capital Partners LLC, which provides investment banking services tailored to the c-store/petroleum marketing industry.

CSNews recently talked to Webber about selling a c-store chain in this economic climate.

CSNews: What advice would you have for those looking to sell c-stores now?

Webber: While things were very slow in 2008, we have seen a pickup in activity in the past three months, with various retailers investigating the sale process. Additionally, we have had several transactions close recently, with most of the financing coming from local or regional banks that have had established relationships with strong, local operators.
The days of large, high leverage loans are gone, and the market has retracted to a traditional lending environment driven by personal relationships. But the environment today has changed from six months ago, and there is a little more liquidity in the market for transactions. Banks have to lend money to make money, and for quite a while, they were simply frozen.

CSNews: Are buyer's difficulties getting financing and the extra time it may take to close a deal affecting sellers?

Webber: Sellers should be aware the days of closing transactions in 30 days are gone. However, LTVs (loan to value) are in the traditional historical range and lenders are interested in making loans. Sellers need to realize timing for transactions is prolonged and patience is required.

[Still,] good assets can be sold today within their historical multiple range. Sellers can assist in their sale prices by participating in the future success of the company, which allows for a more flexible transaction structure.

CSNews: How creative are buyers getting in terms of finding financing?

Webber: Most of the transactions getting done are being supported by a more traditional debt structure, with some mezzanine facilities in place. However, due to the number of lenders that are selling their convenience and gas loans, opportunistic investors are purchasing this debt rather than originate new loans.

CSNews: How difficult is it for the average small-to mid-sized operator to financing an acquisition today?

Webber: Most small to mid-size operators that have strong banking relationships have access to capital. The larger acquisitions -- $50 million and up -- are harder to get done because regional and local banks are limiting their total exposure to our industry and are entering into "participating" loan agreements, whereby several banks work together to fund an acquisition.

CSNews: Do you expect to see the financing/loan situation loosen up for c-store operators any time in the near future?

Webber: I think we can expect the environment to improve slightly over the remaining months this year. Lenders are looking for the total package -- loans, cash management and revolving facilities -- and there are no national lenders pursuing our industry. Thus, the local lenders benefit from the depository, cash management and lending relationship in a way a national lender cannot. It increases their profit margin by requiring these services as part of an overall loan. National lenders historically don't have the retail branch services required to service retail deposits, and thus are not able to increase their profitability through a comprehensive relationship.

CSNews: How has the sale of Appco been received?

Webber: We have received amazingly strong interest from both large and small operators. I think buyers realize the store assets are of good quality and in good shape, and that Appco's challenges have been driven more by capital structure and owner/lender relationships than anything else.

CSNews: Are you looking for a single buyer for the entire company or all of the stores?

Webber: While a single buyer would provide the best opportunity for the Appco employees to transition to new employment, we are marketing the business in a format that allows for a small entrepreneur to leverage their local market knowledge, as well as regional operators to use their scale to dramatically increase their bottom line. The sales process approved by the court provides Appco with the opportunity to explore a single transaction and a series of smaller sales. I have an obligation and fiduciary responsibility to maximize a sale value for the benefit of those creditors involved in the case.
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