Given the various challenges that the economy faced last year with high fuel prices, high inflation and rapidly rising interest rates, I’ve been waiting for some indication that the petro mergers and acquisitions (M&A) environment will begin to moderate with diminished buyer enthusiasm and corresponding deal values.
But as we enter 2023, this has not happened.
A good indicator is the sale of a small Texas commercial fuels business that we’re currently handling. Despite the modest deal size, buyer interest is much higher than expected. It will be interesting to see if this bullishness holds throughout the full divestiture process and if the ultimate sales price will be within the usual elevated range.
Solid fuel margins may be one reason for this continued M&A resilience; another may be the fact that downstream petroleum remains a top choice in the stack of commercial real estate investment alternatives. On the retail front, the COVID crisis reinforced this strength and has helped maintain this premier position, mitigating the expected decline in buyer bullishness and corresponding deal values.
With the Fed just raising interest rates another 50 basis points and additional increases in the offing, one wonders when commercial mortgage interest rates may become a mitigating factor.
Plus, the highly awaited midterm election turning out to be more of a red ripple than a wave may result in continued government-induced economic turbulence. Being a red-blooded American petro-pro, I can’t help wondering how it’s possible that half of America is so satisfied that they would vote to preserve the status quo that we’ve endured over the past couple of years.
Given all of this, it seems impossible that this strong M&A environment will continue unabated through 2023. The risk is real that the tide may turn, tempering buyer interest and the elevated purchase multiples, thus leaving some hapless marketers wishing that they had sold while the getting was good. Waiting too long could pose a dual threat of diminished proceeds, while resulting in a more complicated and protracted divestiture process. Pragmatic action seems to be the prudent choice for those with near-term exit plans. My fear is that once the tide turns, it may be quite a long time before things return to a comparable high value environment.
Finally, I can’t let 2022 pass without proffering my two cents on electric vehicles (EV), given its preoccupation in trade publications and events these past months.
Toyota Motor Corp. President Akio Toyoda neatly encapsulated my feelings. “People involved in the auto industry are largely a silent majority,” said Toyoda. “That silent majority is wondering whether EVs are really OK to have as a single option. But they think it’s the trend, so they can’t speak out loudly.”
Given the many negative issues including inextinguishable fires, electrical infrastructure restraints, limited range and lack of charging points, I believe that EV may ultimately turn out to be a flash in the pan infatuation. As such, marketers should be cautious before jumping on the EV bandwagon in 2023.
Mark Radosevich is a 43-year petro-veteran and recognized industry advocate. He is president of PetroActive Services (Petroactive.net) and can be reached at: [email protected] or (423) 442-1327.
The opinions expressed in this column are those of the author and do not necessarily reflect the opinions or beliefs of CStore Decisions.