SALT LAKE CITY -- Assessing the value of a Florida chain of 50 stores--40 fee sites and 10 leased sites--along with 15 dealer operations became a hypothetical exercise for six panelist at a morning financial forum during CSP's Outlook Leadership 2012 conference.
As a way to examine the nuances in company valuation, the exercise proved enlightening for the 150 session attendees, many of whom are potential buyers as well as sellers.
The exercise set up a list of statistics and historical data set to mimic the financials of a mock company, "ABC Convenience Stores Inc," complete with total fuel gallons in the $70-million range annually, merchandise sales at about $50 million and store-level EBITDA (earnings before interest, taxes, depreciation and amortization) at about $13.5 million.
Naming some of the pros to purchasing such a chain, the retailer on the panel, Jeff Kramer of Prima Marketing, Fairmont, W.Va., said strong cash flow, good ratio of income to expenses, a solid number of high-performing stores (vs. just one high performer). In addition, the stores are located in Florida, where the demographics and economy (despite housing struggles) are promising.
Some of the cons Kramer named were the competition rushing into Florida, including names like Wawa, Thornton's and Sheetz. He also said the asking price was high at about $1.8 million per store and the lot sizes at 2,800 square feet on average were not ideal for stores of the future.
"But beauty is in the eye of the beholder," Kramer said. "We've gotten used to an urban location, whereas a chain like [Ankeny, Iowa-based] Casey's has done outstanding in rural areas."
In many cases, chains eager to grow find acquisition a logical route, bypassing numerous barriers to entry as well as the up-front costs of building from the ground up.
Kramer had other pieces of advice including focusing on capital expenditures. Retailers need to know additional costs required to properly bring the new store back online. He also said to consider fuel brand and the option of going unbranded. "It's huge regarding the flexibility it gives you," he said. "But if you're unbranded you ought to bring a strong [c-store] brand to the area; if you choose an oil company brand, they're looking for longer and longer terms."
The topic of sale-and-leaseback deals emerged. Stephen Horn Jr., senior vice president of acquisitions for National Retail Properties Inc., Orlando, Fla., said one of its main criteria when reviewing a possible buy is whether the tenant is "bankable" or not. "We're in love with rent vs. land," Horn said, noting how the value of the asset itself and the historic cash flow are also strong indicators.
Panel moderator, Dennis Ruben, executive managing director, NRC Realty & Capital Advisors LLC, Chicago, provided attendees with a list of valuation assumptions and methodologies including:
- Valuation multiple ranges are calculated on store-level EBITDA in the case of retail operations and total dealer fuel income in the case of wholesale operations.
- Valuation multiple ranges are calculated on the most recent 12-month income statement period, either trailing 12 month statement or a fiscal year-end statement.
- Typically, each store is analyzed separately. In the absence of individual store-income statements, the multiples are calculated on total store-level EBITDA.
Other panelists included Bill Havard, senior vice president, Wells Fargo Insurance Services USA Inc., Chicago; Michael Phelps, senior vice president, RBS Citizens NA, Providence, R.I.; and Brock Rule, COO, Hopkins Appraisal Services, Independence, Mo.
About 900 retailers, suppliers and industry participants attended the three-day, CSP-sponsored conference, held from August 12-14 in Salt Lake City.
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