The Full Ranking
Overall, it is still a “seller’s market,” agreed Robert L. Valentine, managing director of Trefethen Advisors LLC. And he notes that as consolidation continues and the number of attractive retail opportunities diminishes, buyers have become more flexible in various ways.
“Previously, if you were a seller and wanted to retain real estate, there were limited opportunities to exit. Buyers have become flexible for the right assets. They are willing to enter into long-term leases and buy the business,” Valentine cited. “Additionally, the need to bifurcate a sale of retail and wholesale assets is often not necessary — a large number of buyers have developed multiple classes of trade: salary operated, consignment, pure supply, etc.”
M&A in the Year Ahead
When asked whether they expect convenience channel M&A activity to remain as robust in 2019, the experts CSNews spoke with seem to agree on three things:
- Yes, the merger and acquisition environment will remain very active;
- It’s getting harder to find “quality” acquisitions in the industry; and
- With almost all of the large chains having already consolidated, there’s not likely to be as many large deals going forward; rather, the focus is now shifting to the midsize chains that are left and smaller operators with between 10 and 100 stores.
It’s getting harder to find larger, multi-store, regional deals, especially those with quality store operations, pointed out Mark Radosevich, president of PetroActive Real Estate Services LLC — a firm that generally focuses on the traditional multi-generational marketer segment. He foresees much of the M&A activity ahead being among the 10- to 30-store operators, but said the challenge for buyers will be to match these opportunities with their established growth plans and geographic preferences.
“Look at the top 100 chains of stores and you will notice there is only a handful of chains who have a hundred stores or more. But there are a lot of chains in the 35 to 100 area and this is where you are going to see a lot more of the consolidation,” Monroe echoed.
Valentine agrees, but his prediction is a bit narrower. He foresees robust M&A activity around chains operating between 10 and 50 stores. Operators of this size need to grow and/or innovate, he said, but the reality is that the return of investment in a new-to-industry or remodeled site vs. a sale of existing stores is outweighed by the multiples that are being paid at this time.
“It is purely a numbers game,” he said. “If you are looking to acquire a chain with more than 100 stores, there are not a lot of options. The number of deals will increase with smaller store counts.”
Given the “patient” message by the Federal Reserve and an expected pause on increasing the federal funds rate, financial leverage will continue to be available in the market for high multiple purchases, added John C. Flippen Jr., managing director of Petroleum Capital & Real Estate LLC.
“Midsize and smaller firms will either decide to grow bigger and gain better economies of scale or sell at these higher multiples. The total percentage share of the top 10 convenience store chains is still modest relative to other types of similar industries and thus, there is still room for consolidation,” he said.
Download our full report, “Saying Yes to Growth,” by clicking below.