Like more than 20,000 others in our industry, I recently attended the NACS Show. It was a grand conference indeed, in the best of all possible locations: Las Vegas. This event attracts a large and colorful cross-section of leaders and influencers from the industry. The voluminous list of food, beverage, tobacco, candy and snack companies that sell to convenience stores alone could fill up the Las Vegas strip.
This year’s bash was truly a remarkable one in many respects, with little to do with the actual trade show and its usual sensory overload. In particular, it was the timing of the conference that struck me. Within the period of a week or so before the show to the week or so after it, there was a tsunami of acquisition activity.
On Sept. 30, the gargantuan, nearly $3 billion Hess-to-Marathon transaction closed. On Oct. 1, CST Brands and Lehigh Gas Partners announced the successful completion of the acquisition of the general partner of Lehigh Gas Partners LP (LGP). And, on Oct. 19, large independent refiner and fuels marketer Tesoro Corp. announced the creation of a full-service logistics company with its agreement to have Tesoro Logistics LP acquire QEP Field Services for approximately $2.5 billion, including 58% ownership in QEP Midstream Partners and its natural-gas assets and businesses.
All I can say is: Wow! The industry’s appetite for consolidation is unprecedented, with much of the above-mentioned activity fueled by the tax-advantaged master limited partnership (MLP) structure. By the way, this flood of activity follows five years of dynamic consolidation.
Efficiency and Growth
While many question how this momentous fervor for acquisitive action can continue, it all makes eminent sense that there is a continuing thirst for more. When you look at the future of fuels demand in the United States, which is already down significantly from the peak years of 2007 and 2008, it may continue on a relatively flat line. The effects from the CAFE fuel standards will raise average miles per gallon (MPG) of the U.S. passenger vehicle fleet to 60 mpg by 2025, and 50 mpg for light trucks. By contrast, the 2015 requirements are 39 and 33 mpg, respectively. This alone represents a more than 50% improvement in fuel efficiency over the next 10 years, and the pace of additional vehicles projected to be sold in the United States may not be completely offsetting.
Combine this with the increasing number of electric and compressed natural gas passenger vehicles and light trucks to be sold in the future, and you can begin to see the potential for a “zero-sum game” outlook for U.S. gasoline and diesel fuel sales.
Therefore, there is the continuing need for all fuel companies of every size to grow, and take advantage of operating efficiencies and positive tax structures through increasingly larger networks of terminals and/or retail stores with substantial throughput.
Seize the Day
This brings me back to the NACS Show. Because my firm works with many smaller to midsized fuel distribution companies and retail store chains, I am often approached for “intel” regarding potential acquisition deals. There were several moderately sized companies with whom I talked on the trade-show floor, and they readily inquired about such opportunities. These were not big companies in the world of fuel distribution, but midsized ones who have astutely taken notice of trends and have already cobbled together some asset purchases. And still they want more, because when the pace of opportunities slows, they do not want to be dwarfed by larger players and therefore disadvantaged in the markets in which they do business.
My suggestions to jobbers now are:
- Continue to develop and refine a growth strategy.
- Network and follow up on all leads.
- Determine what markets need to grow, rationalize non-keeper assets, and use the funds for acquisitions.
- Rebuild locations with significant volume upside.
- Hire a consultant with strong ties to the industry and proprietary relationships to assist.
- Be ready to take advantage of opportunistic purchases.
While these steps offer a simple guide, effectively implementing them will have you singing “The Beat Goes On,” just like Sonny and Cher.
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