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Monday, March 23, 2020

M&A Deals Expected to Keep Rolling

Source: OPIS Oil Express
By Donna Harris, Steve Cronin

Reprinted with permission of OPIS (Oil Price Information Service) By IHS Markit. For more information on OPIS products and services, visit or call 888.301.2645.

One of the nation’s largest and most active consolidators in the downstream petroleum business still has plans to be acquisitive, despite the crisis created by the coronavirus disease 2019 (COVID-19).

And based on interviews with advisory firms, there should be other opportunistic buyers.

Alimentation Couche-Tard’s CEO Brian Hannasch told analysts during the company’s latest earnings call that “some of our best opportunities have come after a difficult period.”

Hannasch said that while it was normal to see sales multiples in deals decrease during and after periods of crisis, he thought that consolidators who have been active in recent years might not have the balance sheet flexibility going forward to take advantage of good deals.

Financing is also likely to be more difficult to obtain, he said.

“So, as always, our approach has been to maintain a clean balance sheet and be able to get through these difficult times in good condition and take advantage of opportunities that may arise,” Hannasch said.

Slump May Prompt Sales

Industry M&A experts agree that some deals will be difficult to finance. And as the economy declines due to the uncertainty surrounding the virus, some deals will crumble. But in other cases, the slump could prompt transactions.

“If you are a 70-year-old owner and you do not have kids you might decide you can still get a great price and it’s time to sell,” said Jeff Kramer, managing partner for NRC Realty and Capital Advisors. “You also might find some companies selling off unwanted stores or business units to raise cash.”

Mark Radosevich, president of PetroActive Real Estate Services, said the retail petroleum business has been “resilient” even in a troubled economy. He believes buyers will remain plentiful and purchase multiples will stay above traditional levels.

“Demand will remain for the various product mix from fuel to cigarettes to beer to snacks,” Radosevich said. “This is one of the reasons that acquisitions have been so strong – because the overall businesses are fundamentally stronger than other retail options.”

The current ultra-low interest rates also could stimulate deals and the “acquisition business should continue unabated once the dust settles from the whole coronavirus media frenzy,” he also said. “As far as the dealer-supply business is concerned, prompt-pay discount income is down with lower rack pricing, but for consigned fuel marketers, the rack- to-retail margins seem quite healthy as street prices are not dropping along with the rack.”

Temporary Slowdown

Downstream Energy Partners expects only a temporary slowdown in M&A activity.

“That is to be expected given the magnitude of the crisis,” said Steve Griffin, managing partner for DEP. “Some operators will have more concern than others given the extreme drop in crude oil prices. Big Oil, for example, has recently lost a great deal of market value and may be less willing or able to participate in M&A. They may choose to wait to see the volatility disappear and some sense of stability back in the market.”

Griffin said that in the short-term the M&A business is “busy.” He said most buyers are well-capitalized and have developed strong relationships with capital providers.

“Interest rates are quite obviously at historic lows, thus debt financing will be cheap. Thus, our belief is that many buyers of retail and wholesale gas and convenience assets are going to be opportunistic,” Griffin said. “At this time there are more buyers than we’ve ever seen in this space.”

His firm just brought two new sell-side M&A transactions to the market. “Feedback has been quite positive on balance. A few will sit and wait, but most have requested to see our new transactions immediately,” he said.

“They cite, in particular, that their lenders have informed them (in contrast to 2009, for example) that they will have no problem obtaining debt financing. Some PE (private equity) participants have even mentioned they have recently completed transactions and have plenty of dry powder. Overall, buyers are signaling the desire to be aggressive, no doubt due the fact that they have recently seen so much competition for these transactions,” Griffin said.

Crisis Gives C-stores Edge

The crisis also has created an advantage for the convenience-fuel business over other retail industries, since fuel, food and groceries are necessities.

“Convenience stores and gas stations don’t have to shut down,” amid government restrictions imposed on other industries, noted Kramer. “That’s huge.”

Fuel volume is down and some of that decline may not come back as the virus accelerates an already established trend toward telecommuting and shopping online, he said.

However, Kramer believes strong companies will be opportunistic and some convenience retailers will follow Amazon’s lead with online sales and touch-and-go technology.

7-Eleven Inc. is a prime example. In response to COVID-19, 7-Eleven is encouraging customers to use its growing delivery service.

“As a convenient alternative to in-store shopping, participating stores also offer delivery to more than 30 million households through the 7NOW delivery app,” the company said in a statement to customers. “7-Eleven’s delivery service has added a contactless delivery option where customers can indicate if they prefer their delivery contactless, meaning the delivery is left at the door by the driver.”

To see a list of convenience stores and gas stations for sale, click here.