The c-store acquisitions market continues to enjoy brisk activity with elevated purchase multiples, continuing a multi-year run with an ever-growing stable of well-healed buyers actively looking for deals.
Pristine store packages garner the most value, putting them virtually out of reach for acquisition-minded traditional marketers. Rather than be content to sit it out on the sidelines and yield the field to the big equity guys and national store operators, following are some thoughts and tips to enable smaller marketers to stay in the game.
Multi-store packages tend to be viewed as “pristine” when they comprise the following features:
- The package includes a sufficient number of stores to enable a buyer to enter a new market where it doesn’t already have a presence. Generally 20 or more stores are optimal.
- Store financial and volume performance is consistent across the chain with minimum inside sales of $1.8 million and fuel volume of 1.5 million gallons per store.
- Facilities are all of a modern size and configuration.
- Foodservice and other traditional revenue streams are the norm at all sites.
Pristine store buyers are generally not concerned about whether a site is owned in fee, as owning the business enterprise is more important than owning the dirt. This inclination to not own the real estate and willingness to enter into long-term leases is one of the primary factors that drive the exceedingly high valuations of pristine store packages.
Long-term leases with well-healed private or publically traded chain operators are then marketed post-closing to investors, thereby garnering the seller additional
proceeds from the sale. The combination of the proceeds from the initial sale plus the proceeds from the subsequent sale of the leases elevates the purchase multiples way past normal ranges and pushes them out of the reach of traditional marketer buyers.
This approach only works with the sale of pristine store packages. Multi-store packages that fall below a pristine level will not garner the same buyer enthusiasm and values, thus leveling the playing field for traditional marketers.
Less-than-pristine deals are types of deals that may include a mix of good to average fee and leased company-operated stores, dealer leased sites, dealer supply contracts, and maybe a commercial fuels and lubes component. They often feature company-operated sites that are better suited for a lessee dealer or a straight dealer sale. In other words, the deal can’t be wrapped into a neat package with a bow on top.
The primary focus for traditional marketers is ownership of the real estate, while sellers have a simple requirement of cash at closing and an industry exit that is as seamless as possible. Large store operators have a tendency to cherry-pick sites from a package, which complicates the overall divestiture process, putting them at a disadvantage versus buyers that are willing to take down the entire offering and sort it out post-closing, including divestitures or transitioning stores to alternate operational methods.
Be prepared to place a reasonable value on deals that fit within pre-established acquisition and growth plans, and don’t expect to steal anything.
Multiples above 6.5 times EBITDAR (earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs) for fee simple properties are the norm right now. Paying a higher multiple may be warranted for choice synergistic deals.
Remind the seller that marketer due diligence is usually less strenuous than that of larger operators, and there is less chance of a price re-trade at the end. Demonstrate sufficient financial capacity by being forthcoming with the sources of readily available capital. Engage a preferred lender in the early stages of the process, including having them provide a comfort letter confirming their willingness to fund the deal.
Stay continuously engaged with the seller’s point person, and don’t be shy in asking for guidance on price or desired deal structure. If selected as the preferred buyer, develop a rationalization plan during due diligence, then be decisive with post-closing site divestitures or operational adjustments.
Traditional marketers may not enjoy all of the advantages of the larger buyers on pristine deals, but with some forethought and preparation, they can still enjoy success with the numerous other deals that will be coming on the market over the next couple of years.
Mark Radosevich is a strong industry advocate and 40-year petroleum professional. He is president of PetroActive Real Estate Services LLC. Contact him at [email protected], (423) 442-1327, petroactive.net.