Why Now Is the Best Time to Be M&A Involved
INDIANAPOLIS — There will never be a better time to be either a seller or buyer in the convenience store and gas industry, Terry Monroe, founder and president of American Business Brokers & Advisors, told attendees of this week's M-PACT 2016 show.
Although his statement may seem contradictory as it is seemingly difficult to be a great time for both parties, Monroe explained in his speech that “money is so cheap” and the environment “won’t ever be as good.”
Addressing retailers on March 24 at the regional trade show that covers the states of Ohio, Kentucky, Illinois and Indiana, Monroe added that although the environment is optimal right now, c-store retailers shouldn’t rush to sell their businesses. First, he said research must be conducted to determine fair market value for c-store assets, and interested sellers should know who may pay the most for their assets.
“Your business is probably the biggest financial asset you own,” he said.
Convenience stores with real estate in the Midwest generally obtain a sales price of five to seven times EBITDA, or earnings before interest, tax, depreciation and amortization, while c-stores being sold without real estate generally garner two to three times EBITDA, according to Monroe. These multiples tend to be higher in other regions, he said, specifically c-stores located on the West Coast and in the Northeast.
Monroe emphasized that a c-store will not simply sell based on its cash flow. Whether or not a property sells depends on five factors:
1. What’s the upside for the buyer?
2. Where is the business located? Urban locations generally bring higher value.
3. Is it branded or unbranded?
4. What is the current competition?
5. Is it a fee property or leased?
Once these questions are answered and a c-store operator decides to sell his or her business, they should make sure to hire an attorney experienced in such transactions, a tax accountant and an experienced intermediary, advised Monroe.
“Do not attempt to sell it yourself,” he cautioned during his speech. “You are not objective, are too close to it, and you won’t get as much value as you should. You also don’t know how to appraise the property fairly. Do-it-yourself selling will devour your time, and you don’t know how to find a qualified buyer.”
Professionals are adept at all of these factors, including how to find qualified buyers, relayed Monroe. He said there are three types of buyers:
- Financial buyers such as master limited partnerships;
- Trade buyers, who are people who already own stores in the c-store industry; and
- Job buyers, who are owner/operators.
Financial buyers will offer the most to purchase assets due to the significant cash they have on hand, according to Monroe.
As for timing, he estimated it takes nine months, on average, from the date a decision is made to sell a c-store property to the date the transaction closes.
M-PACT 2016 took place at the Indiana Convention Center in Indianapolis March 23-24. The annual spring event bills itself as the largest gathering place in the Midwest for energy and convenience industry leaders.