Why Now Is ‘Perfect Storm’ for C-store Industry M&A: Part 2
NATIONAL REPORT — While increasing consolidation in the convenience store industry is being driven by more sellers in the market than ever before, also sharing the wheel is stronger buyers than ever before — particularly large chains that are just getting larger.
The majority of buyers that are scooping up small and mid-sized chains lately are the largest convenience store chains, as well as private equity firms. These two groups have the cash to spend and, as a result, are outbidding mid-sized chains for available assets.
“Major industry players are going into new markets and expanding rapidly, and someone with only 50 stores can’t afford to pay what they can,” Dennis Ruben, executive managing director of Chicago-based NRC Realty & Capital Advisors LLC, told Convenience Store News. “A mid-size chain can’t just write a check, compared to big chains who are able to bid a lot of money and don’t need any financing.
“It’s the same eight or 10 people bidding, because they are the ones who can just write a check and can compete with the prices,” Ruben continued.
John Flippen Jr., managing director of Petroleum Capital & Real Estate LLC, says this all started with the major oil divestures in 2008 and 2009. Ever since then, sales have been happening at an increased rate.
Now, it’s about the rise of the master limited partnerships (MLPs) and the larger regional players. Of the past 28 deals facilitated by his Maryland-based firm, MLPs purchased 19 of them and private equity firms bought two, according to Flippen.
“Chains like CST Brands, Sunoco, Couche-Tard and 7-Eleven are buying whatever large chains they can find because they need to scale,” he said, pointing to 7-Eleven Inc.’s recent acquisition of more than 100 stores in South Florida and its purchase of the 180-unit Tedeschi Food Shops in New England.
However, buyers are not only looking at large chains. Those previously limiting their transactions to chains with 50 or more stores are now expanding their scope to look at everything available in hopes of beating out the competition.
“Big players are now saying we want to see every deal, big or small. They are looking at deals they didn’t before because it makes sense to buy defensive,” Ruben said.
Strong buyers means more money on the table for sellers. With the combination of record profit margins, low interest rates and large private equity firms acquiring more c-store industry assets than in the past, sellers are getting offers higher than they have seen in years.
Flippen, though, said he doesn’t see prices going any higher than they are now. So, while the industry will continue to consolidate, eventually interest rates will increase and things will slow down a bit.
“The price of oil has dropped and margins have expanded, so there is a lot of cash and capital available to purchase assets,” said Flippen. “This won’t continue forever, but the consolidation isn’t going to end.”
The “feverish” trend of buying is projected to continue for at least another six months before tapering off, according to NRC’s Ruben. Eventually, the majority of the c-store industry will be comprised of very large chains on one end and lots of single-store owners on the other end.
“We will see increasing consolidation, where six or eight companies control one-third of the c-stores,” Ruben concluded.
Click here for Part 1 of this report, focusing on today’s sellers.