Expect M&A to Intensify at Yearend: Report

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The convenience-store industry can expect an uptick in mergers and acquisitions as 2023 winds down, with the “robust” activity to continue into next year, according to the latest c-store acquisition update from financial advisory group Capstone Partners.

“We expect M&A activity in the sector to remain robust as the industry continues to demonstrate strong defensibility and large strategics are flush with cash,” said Jesse Betzner, senior director, Capstone Partners. “However, there are important differences compared to the boom times of 2021—namely, the cost of capital has increased significantly, and there is a greater emphasis on the location, quality and size of the store footprints.”

Year to date (YTD), M&A volume has outpaced prior year levels in 2023. Capstone reports 35 transactions announced or completed through the end of September compared to 33 deals during the same period the prior year, an increase of 6.1%.

Transaction volume in the sector has significantly outperformed broader M&A markets, which have seen year-over-year declines of 25.1%, according to Capstone Partners.

“While high quality, small store count operators have continued to garner buyer interest, acquirers have favored scaled operators in attractive geographies,” Capstone reported. “This has been evidenced by the average store count of target companies increasing to 50 stores, substantially above the 2022 average of 23 stores. As sector players contend with an elevated cost environment, larger players that can leverage economies of scale are able to withstand higher operating expenses more effectively than smaller operators.”

The firm added that the integration of new stores from several large acquisitions in recent months and years has near completion in many cases, opening the door for the acquirers to look for new investments.

“Dealmaking is expected to intensify towards the end of 2023 and into Q1 2024 as large strategics complete integrations of recently announced acquisitions,” Capstone said. “Sector participants have the balance sheets to pursue acquisitions. Many of the limitations have to do with a lack of inventory in deal markets, which bodes well for middle-market operators contemplating an M&A process.”