Many were surprised by the election results yesterday, but there are some important impacts on our industry M&A. Overall, it is likely positive for US economic growth, which by definition is usually positive for M&A unless it is accompanied by high interest rates and tight money conditions. Here are my initial thoughts.
ECONOMIC OBSERVATIONS:
Economic growth.
The clear message is the economy is first and foremost on the public’s mind. Inflation may be secondary as long as wages keep up, and consistently low energy prices led by U.S. sources help inflation worldwide. Right now real income after inflation is quite positive. Most of the rest of the world will be secondary, which is not only their problem, because the U.S. Dollar is the world’s currency for most trade and debt. Clearly, the big economic push is AI leadership for U.S. strength.
Tariffs.
Increasing dramatically to improve onshoring through domestic production. The resulting increases in prices will be passed along, but that will help protect domestic wages and profits from competition--automobiles and longshoremen being good examples.
Immigration.
Long overdue for better screening for undesirables before entry to the U.S. Few will be deported, because we still need low wage earners here and they dramatically helped our recent growth. Fewer will come here, but hopefully we will get good scientists, health workers, tech workers, etc. Good luck.
Musk and EVs.
His arrival is critical, including for our industry. His genius is incredible and his role at least as an advisor will be very important. He will not mark the end of EV progression, as that is his main business, but he will get plants built in the U.S., particularly in the Southeast and Texas to reward those states for their support and their easier work rules and lower cost labor. Maybe some Midwestern ICE plants can be converted, and jobs can be retained, but many fewer jobs to minimize the labor cost disadvantage and yet produce less expensive automobiles.
EV technology has rapidly improved and solid state batteries replacing heavier and more expensive lithium batteries is moving closer. Musk is doing his own research on solid state batteries, which is likely why he has not said much about them as yet. But they are critical long-term for Chinese worldwide competition. And certainly robotaxis and autonomous vehicles have moved closer to commercialization. Trump in general, plus Musk as a combination, are not necessarily going to benefit the gasoline/c-store/foodservice industry.
U.S. Budget Deficit.
It will not go away quickly, as investment support and tax breaks will be needed for some time for onshoring. Taxes not increasing will help business and M&A. Also, many government programs have been sacred including Social Security, Medicare and Medicaid, although the administrative costs of these programs are horrific.
Interest rates.
First, short term rates determined by the Fed could still fall further based on the slope of the yield curve. A positive sloping yield curve where long-term free market rates keep rising helps incentivize banks to lend. Long term rates are still historically low for a strong economy. Over 5% for Ten Year Treasuries will get painful, but may become common again to grow our way out of our deficits. Other countries have deficits as well, but does misery always love company? Productivity gains from AI will help inflation and interest rates as AI progresses.
Cryptocurrency.
As they say, follow the money. Biggest PAC donors, perhaps from both parties, were the crypto companies. Like EV chargers at your gas stations, perhaps it is too early to get bitcoin ATM’s, but keep an eye on the progression. Many of our traditional banks are already investing in and lending with Bitcoin and blockchain-related businesses. And the BRICS nations continue to pursue alternatives to US Dollar dominance, and crypto could help them succeed. In fact, tiny but historically very corrupt El Salvador switched its entire national currency system and it has been quite successful economically, including fighting political corruption and crime. Hmmm.
Labor.
Will continue being an industry problem, more quality than quantity, but if store sales including critical foodservice succeed, it is easily affordable. Keep aggressively pursuing labor saving technology, including the back room and Executive.
Anti-trust and regulation.
Any easing will be favorable for NTIs and M&A.
SUMMARY:
Certainly at least for now, new technology, less regulation and a strong economy are very positive for M&A in all industries.
Long term, the impact of reshoring and tariff manipulation does not have a good history for overall worldwide growth. More serious economic issues are typically worldwide in nature, and right now those issues are basically decided by the United States. Federal Reserve policy will more than ever be tied to the Treasury Department and under presidential influence and control. Get used to it, it’s not the first time.
Savings from cost efficiencies and scale in general will remain large incentives for M&A. Our overheads for the technologies to operate and optimize fuel, store and foodservice are high, but the returns are so successful that the strong operators do not even need to own the real estate. Think about that a minute.
Lower crude oil costs flowing to retail are certainly positive to help consumer purchases in the store, if you have the right items, because health issues will be even more important in the future.
More post-Covid competition resulting in softer volumes and margins could be very
painful for profitability and M&A selling prices, even if selling multiples do not change. Price tweaking between locations will be more challenging. Competition from Amazon, Walmart and Costco is not going away either.
EVs and more efficient vehicles in general remain a significant threat to store traffic, and strong foodservice could become the main saving grace for traffic, since most EV charging will eventually be at home or at work. People will buy EVs when the price is right, when they can charge easily or at least get more mileage, and the new cars are proven.
In all, convenience lives and thrives, but competition is strong and consolidation will continue.
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