Analyzing Acquisitions, Part 1 of 4

Convenience store industry consolidation activity highest since 2001

CHICAGO -- If you're getting the sense that consolidations in the convenience store industry are ramping up, you're not crazy. Overall, merger-and-acquisition transaction volumes in 2005 were at the highest levels since 2001, according to Randy Karchmer, managing director at Memphis, Tenn.-based Morgan Keegan & Co. Inc.

Speaking at the NACS State of the Industry Summit in Partnership with CSP in Chicago last month, the financial analyst said M&A transaction volume increased 33% in 2005 while the number of deals increased 6% compared to 2004 numbers. [image-nocss] Activity in 2006 remains strong, he said. [CSP will name its Top 10 industry consolidators and delve into the motivations behind today's acquisition fever in the May issue of CSP magazine. Watch for it soon.]

In addition to key industry consolidators, Karchmer said that private-equity firms are stirring up the pot, bringing more than $125 billion in equity capital to the table, funds that must be invested over the next several years.

Multiple valuations, or the numbers times earnings before interest, taxes, depreciation and amortization (EBITDA), have fueled interest in both buying and selling, as the median enterprise value to EBITDA multiples have increased from 6.4x EBITDA in 2001 to what Karchmer called an all-time high of 8.2x in 2005. Higher valuations mean better negotiation positions and loan terms, he said.

Investor interest in the c-store channel has perked up, in part due to the strong stock performances of companies like Sanford, N.C.-based The Pantry Inc., Ankeny, Iowa-based Casey's General Stores Inc. and Laval. Quebec-based Alimentation Couche-Tard Inc.

Some of the financial good news has prompted chains to go public, with companies like Franklin, Tenn.-based Delek taking steps toward an initial public offering (IPO) this year and Dallas-based Alon USA going public last year.

CSP Daily News will analyze these issues in additional stories to run this week.