Here is the final section on Mergers and Acquisitions at the NASM meeting of Shell distributors on September 12 in Houston. This summary was discussed throughout the presentation. Thanks again to Faheem Jamal of Chestnut Markets. Thank you again for your assistance, Natasha Pitcock, NASM’s Executive Director, natasha.pitcock@nasmonline.com or 859-554-3175, and to Malachi Bennett of Shell Oil for your support.
All things being equal, the current situation overall is supportive for a strong year ahead of M&A activity. In particular, the Fed is forecasting continuing monetary easing supported primarily by easing of inflation pressures for now. Labor remains tight in the U.S., but fortunately for our industry, employee retention rates have improved as fewer new job openings are available in the overall marketplace. No doubt this upcoming election is helping markets and our still strong economy for now. Most all countries are easing at least monetary policies, and the strong U.S. economy has led this trend and is needed to support sizable deficit spending that will have to be dealt with next year, likely at least partially through higher taxes somehow.
Our industry is feeling its own pressure now from increased competition at the consumer level, both for fuel and inside store sales, so there will be regional tests of pricing power. A new pressure could be the current trend towards healthy eating and weight loss, recently gaining momentum helped by pharmaceutical industry technology. Thus, more scrutiny of sales trends by buyers is likely since M&A selling prices are based on cash flows times a market multiple. Market multiples are set by interest rates and the partly by the psychological effect of expected growth rates in sales and earnings.
Yet, consumer demand for convenience is strong, which should continue to support good ROI’s for rebuild activity at good sites, NTI activity, and M&A in general. NRC has generally looked at purchase multiples this year between 6.5-9.5X for owned retail stores and chains, a very wide range. Monetary easing and generally stable economic conditions have firmed and tightened multiples to a range of 7.5-10.0X for owned retail stores and chains. For a combination of reasons, larger size packages of good stores with adequate parking are selling at premium multiples sometimes exceeding a 10X multiple, especially for companies wanting to grow quickly, as it takes a very long time to permit and construct a large number of NTI sites.
This post Covid transition is expected to bring more M&A sellers to the market based on changes in these trends and management transitions. Even in strong markets, there is no guarantee they will remain as strong. For example, improved fuel mileage and eventually more hybrids and electric vehicles are coming. The leverage up or down from both earnings and the selling multiple is significant.
It is also important to remember that because of the great diversity of business segments in our industry, our overheads are typically sizable, which leads to important synergies for acquiring companies. Most notable synergies are related to store support, maintenance, cybersecurity, human resources, and technology in general. Some firms are constantly selling off weaker units to concentrate their business efforts and redeploy the proceeds. Some have dealer networks available to support as well. The promise of Artificial Intelligence (AI) is substantial in our industry for sales and profit optimization, and also for automation. Yet, AI is complicated and both labor and capital intensive on the front end.
Whether buying or selling, please stop by NRC’s NACS Show 2024 booth at N-2462 to visit our team, or call or text me at 303-619-0611 or email at jeff.kramer@nrc.com to set an appointment at the booth, Hunter Club, or a convenient location.
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