M&A: Multiplying Multiples
MLPs, spinoffs, low interest rates spark higher convenience store valuations, new M&A fever
Kramer also alludes to a more powerful buyer within the c-store ranks. It’s not any known chain or spinoff; it’s the aggregation of independent hopefuls who want to get into the business. While he sold the bulk of his chain last year to 7-Eleven, he also sold 14 as one-offs.
Ruben of NRC concurs. In a recent portfolio of 140 stores, NRC saw 3,000 prospects. “There’s an appetite for stores at all levels of the industry,” he says. “We may have fewer interested in Butte, Mont., than Tampa, Fla., but there’s way more demand than supply.”
Of course, these trends influence c-store value on a level outside of any operator’s control. Retailers want to manage their own destinies, says Leo Vercollone, president of VERC Enterprises, Duxbury, Mass. Operators such as himself, he says, are interested in “profitability for today, the short term, say 30, 60, 90 days out; and second, how I’m doing as a company. What am I doing to be more profitable? Is the asset growing?”
Making Your Own Luck
While Vercollone has no interest in selling, he says his company also assesses the market for the sake of the other stakeholders, especially in the event of a sudden change, be it the death of an important employee, a new regulation or threat from a formidable competitor.
Those ongoing, base assessments provide an important perspective, Vercollone says, because what he values in a location may be different to another operator.
“Sometimes I see markets I won’t want to operate in—say, places where you can’t get a [certain] markup on cigarettes because of the competition, where the politics of the area aren’t favorable or neighborhoods where my employees won’t feel safe,” he says. “But a publicly traded company may look at things differently.”
At 25 stores, Vercollone, in his words, “is not in that class of organization,” but he has no doubts that many of the publicly traded companies and newly formed spinoffs and MLPs “by definition are strategically in a position where they can do it.”
He sees that as a plus, saying, “At the end of the day, it’s a rising tide.”