M&A: Multiplying Multiples
MLPs, spinoffs, low interest rates spark higher convenience store valuations, new M&A fever
Beyond tax incentives, willing lenders are also influencing the landscape. Providence, R.I.-based RBS Citizens Convenience and Retail Petroleum Finance Group recently completed the closing of a $32 million, five-year credit facility with Nouria Energy Corp., Worcester, Mass., a c-store operator and wholesale fuel distributor serving the New England region.
The transaction includes term loan facilities to refinance existing debt, a development line of credit that will be used to finance the acquisition or development of new locations, and a revolving line of credit to be used for working capital and letters of credit.
“The RBS Citizens Convenience and Retail Petroleum Finance Group understood our business, which is why they were able to structure a facility that met our needs,” Nouria chairman Tony El-Nemr said in a press release. “This transaction will put us in a great position to meet our growth plans and reach our goal of a half-billion gallons and beyond.”
Buying Frenzy Ahead?
Without even mentioning some of the more active buyers in 2012-2013—such as 7-Eleven, Alimentation Couche-Tard and Casey’s General Stores—the number of new entrants ready to shake up the market seem to be growing by the quarter. And yet market prognosticators such as Ruben of NRC believe 2014 will be more of a market-by-market scenario of fits and starts.
“To me, multiples are a function of two things: where properties are, or the nature of the buyers,” Ruben says. “Certain properties in geographical parts of the country are harder to get zoned and permitted for c-stores … and 90% of the people in the industry rely on local banks and national lenders, who typically require [retailers to come up with] 30% of the equity on their own.”
That said, Ruben believes certain markets are hot, including California, Florida and Texas. He cites “tremendous” interest in Dallas, Austin, San Antonio and Houston. Chicago is another strong market, as is the Northeast because of limit availability and numerous barriers to entry.
Another enticement in many key markets are population shifts back into urban centers, according to Buxton, a real-estate consultancy based in Ft. Worth, Texas. In its “2014 Retail Real Estate Outlook,” the firm cited the trend, especially among the millennial set, which appreciates convenient shopping experiences.
“Convenience is a priority for these young professionals,” the report said. “And smaller-footprint stores give businesses the ability to reach shoppers in previously unrealistic locations, such as downtown areas.”
Given overlapping trends of online retailing and the push by other channels to get into these smaller footprints, the competition for retail properties is only going to intensify, the firm said.
“[Stores there] will go to buyers who can pay more,” Ruben says. “It’s difficult for the average retailer in those areas to grow. There’s a limit to how much they can borrow, so they’ll run into trouble with the big guys.”
The larger issue will be when opportunity and objective meet, says Kramer of Prima Marketing. “There are always companies on the lookout for acquisitions that fit, particularly if it offers synergies,” Kramer says. “If you’re paying what might appear to be a high multiple, the overhead savings, improved buying power and today’s low-cost financing may make the numbers work. It’ll be an especially solid deal, if it’s a strategic buyer expanding to an area that’s hot for them.”