C-store M&A Continues, But Is Peak Near?

ATLANTA — It is no surprise to anyone in the convenience store industry, and even to some on the outside, that the channel has been riding a wave of merger and acquisition (M&A) activity over the past few years. But will the wild ride continue?

"It appears we may have hit a peak, but it is still good," Jeff Kramer, manager director of NRC Realty & Capital Advisors LLC, said during a M&A educational session at the 2016 NACS Show, held recently in Atlanta. "There are many more buyers than sellers, and the market is still strong."

Citing the strong multiples that all this M&A activity is generating, CST Brands Inc. Director Rocky Dewbre echoed Kramer, noting: "Multiples are at an all-time high with heavy cash flow relative to history, so value is at a peak. The question is: Will it go up? If we are not at a peak than we are close."

With a long c-store industry resume — including serving as executive vice president of channel operations for Sunoco LP, and more than 20 years of leadership roles at Susser Holdings Corp. and Susser Petroleum Partners LP — Dewbre has been on both sides of the M&A equation. He said there are multiple factors to consider before entering the mix, and they include geographic fit, asset quality, and return potential.

"Am I going to pay based on today, or what the assets can do in for the future?" Dewbre questioned. "I struggle with that. It's something to consider, but you don't want to overpay."

The size of the store and its lot, cash flow, and overhead costs are key qualities that buyers should keep in mind when looking for convenience store assets, Kramer advised.

Geography was at the top of the list for Peter Tedeschi when he was the president and CEO of family-run Tedeschi Food Shops Inc., as he recalled. "Geography played a big part of it. We had quantity and scale in a relatively small area," said the now chief strategic officer for Midwest Retail Group LLC. 

Other boxes that potential assets had to check off for Tedeschi were: the right footprint, the right reputation, and the right cultural fit.

He then unexpectedly found himself on the other end of the bidding process in 2015, ultimately selling the New England chain to 7-Eleven Inc. While in the process of buying out a relative, the company's board of directors took a hard look at the c-store chain's valuation. The result was an exit from the business, he recounted. 

"At the end of the day, I had a fiduciary responsibility to our shareholders. The question became: If not now, when? The valuations and high multiples being paid made me go from buying more of my company to selling," Tedeschi said, adding that the sale included a competitive bidding process. "There was not a huge gap in what suitors were willing to pay."

Midwest Retail Group co-founding partner and chairman Paul Reuter told NACS Show attendees that the money is either right or it's not. "Today, the money is right," he said.

With that, all the panelists agreed that consolidation in the convenience store industry will continue for the foreseeable future.

"The fact is there are 160,000 stores, and chains own less than half," Dewbre noted. "There are a lot of stores out there for consolidation."

The 2016 NACS Show took place at the Georgia World Congress Center in Atlanta from Oct. 18-21.