Retailers are rushing to finalize home purchases and sales before the end of 2021 as taxes loom on the horizon.
Towards the end of the second half of the year, my mission with this article is to formulate and share an informed opinion on what the picture of mergers and acquisitions (M&A) will look like for the c-store and wholesale oil industry in 2022.
Will buyers, sellers and lenders still be plentiful? Will interest rates stay low while buy multiples stay high? Will external investors continue to view the petroleum retail sector as an attractive investment? What real impact will planned liberal policies have on real estate considerations?
I took the opportunity to interview different pieces of the M&A puzzle at a recent brand marketer conference in the hopes that some of the key players would crystallize the picture and make my job easier. No such luck. Hence, the following is my best attempt at making sense of a very confused situation.
At the moment it’s madness to close deals before the end of the year when a time of feared uncertainty sets in. Buyers are so inundated with acquisition opportunities that they have to step on the brakes and forego selected deals in order to digest what they are buying.
Traditional marketers, who may have been planning to get out in the next few years, have suddenly expanded their plans with a desire to close a sale before a looming multitude of higher taxes devour what they have created over generations.
Buyers and sellers engaged in active deals that emerged in time for the close of this year seem to be crashing onto a cliff – make it by New Year’s Eve or tumble over the edge into a time of uncertainty. In the case of future deals or those that do not meet the New Year’s Eve deadline, the question arises to what extent M&A activity will be dampened by higher capital gains and inheritance taxes, as well as by the rhetoric of electric vehicles, which is the reality about the importance of oil for the well-being of our country.
When asked about their plans for the next year, buyers, lenders and equity investors expressed their continued commitment and dedication without the plan to curb their appetite for business.
When various limiting factors were mentioned, there appeared to be a general risk assessment that had not yet been incorporated into the growth plans. On the buy side of a transaction, it is currently business as usual, which will still lead to increased transaction valuations.
Considerations for Buyers and Sellers
On the seller side of the equation, there is a clear dichotomy that, despite these high corporate valuations, has real potential to slow down the M&A train. The deliberate and misguided actions of liberal politicians in Washington have the potential to upset the economic balance in the United States and cause many marketers to postpone their sales decisions until things go back to normal, hopefully.
For operators of C-store owners, leasing may be the only remaining alternative to preserve the deeply entrenched business capital rather than giving a large chunk to the government. The potential for significant and costly restrictions on the 1031 exchanges requires a long-term hold on the leases as long as those in the government intent on harming our industry continue to do business in Washington, DC
In family businesses where the cash proceeds should be shared among family members, pragmatic discussions need to be held so that all parties understand the reasons for the lease and the distribution of rental income.
For buyers who insist on owning the property, purchase agreements could be made in connection with the termination of leases and the purchase of the property on a predetermined date or under certain circumstances in connection with future tax law changes.
After all this, my M&A forecast for the next year is that buyers, lenders and investors will remain optimistic, multiples and valuations will remain high, but deal flow will be moderated due to the reluctance of sellers caused by uncertainty and fear. Deals that are closed have a higher lease level as the primary value component.
Our next major hurdle is the midterm elections, where hopefully we can elect enough liberal Washington, DC politicians for business to return to normal. In the meantime, if you are not a member, join your local petroleum marketer association and do your part to protect our industry. Don’t let someone else do the heavy lifting.
Mark Radosevich is a strong industry advocate, recognized petroleum veteran, and President of PetroActive Services. He can be reached by email at [email protected] and by phone at (423) 442-1327.
The opinions in this column are those of the author alone.