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    Time to Sell?

    For entrepreneurs, now is a very good time to sell a business, according to Fortune Small Business magazine. "The economy is, by many measures, in its best shape since the dot-com bubble burst in 2001. Banks are aggressively lending money for all kinds of acquisitions. Increasingly, corporate America views the purchase of small firms as a shortcut to growth and innovation. As a result, a small-business feeding frenzy is in progress," wrote Justin Martin in a cover story last month.

    For entrepreneurs, now is a very good time to sell a business, according to Fortune Small Business magazine. "The economy is, by many measures, in its best shape since the dot-com bubble burst in 2001. Banks are aggressively lending money for all kinds of acquisitions. Increasingly, corporate America views the purchase of small firms as a shortcut to growth and innovation. As a result, a small-business feeding frenzy is in progress," wrote Justin Martin in a cover story last month.

    In 2005, the number of small-business acquisitions (worth $100 million or less) rose almost 20 percent from 2002, according to FactSet Mergerstat, a firm that tracks mergers and acquisitions. Said the CEO of one investment bank: "When you add in private-equity firms flush with cash and a growing foreign appetite for U.S. small businesses, it's almost a perfect storm."

    Prices paid for c-stores are higher than ever. If you are in the West Coast, Southeast, MidAtlantic or Northeast states — or certain areas of the Midwest and West — it may be your lucky day.

    These markets are among those where stores are most in demand by the big players — including The Pantry Inc., Couche-Tard, Delek and others — looking to grow, according to those who help retailers sell their stores.

    "C-store valuations have never been higher than in the last 12 to 18 months," said Tom Kelso, a managing director of Richmond, Va-based Matrix Capital Markets Group Inc. "Valuations have been very good since about 2003, but right now, we have peaked. If you look at the number of transactions and valuations achieved, we are riding a crest where economics are stretched in the seller's favor. As of today, certainly the bubble hasn't burst."

    In terms of market response, c-store owners are still getting anywhere from five to 25 bids per store, noted Evan Gladstone, executive managing director for NRC Realty Advisors, based in Chicago, which has handled, among others, recent store sales for BP plc.

    "For stores on the West Coast or in South Florida and Chicago, prices that buyers are willing to pay in bidding are still at really good multiples. For a stabilized EBITDA, a 12 times annual net income figure or even higher, that would translate 5 to 10 percent capitalization rate, is common."

    Store valuations are being driven by high demand that outweighs supply in many markets as large public companies and others realize they need to grow to remain viable, and the aggressive, sophisticated buying strategy of New Americans looking for an easy-entry business opportunity, Kelso said. "I do not see demand satisfied in the near term," he noted.

    While regions outside the high-demand markets may never have been as "frothy," Kelso said, "There is still demand, just not as great."

    Retailers ready to sell their stores should consider the pros and cons of selling to one buyer versus a number of them.

    "One company sold their chain to Couche-Tard. I looked at the numbers and could have arranged a sale-leaseback equal to or greater to what Couche-Tard paid, and they'd still have control of the business, which could have been sold later at an additional multiple."

    Of course, not all sites in a chain are equally valuable. "We're finding it unlikely you will get a great price for 50 stores if you insist on selling them all to one buyer," Kelso said. "There are stores that are really, really, really good, those in the middle and those at the bottom."

    What makes a "really, really, really" good site? High volume, great location, an updated facility and little deferred maintenance, said Kelso.

    Stores in the middle tier include new locations that haven't reached their optimum performance levels and those that have peaked in performance and may have some new competition and deferred maintenance. "Maybe the market around the store has changed and the store is not performing like it did five years ago or won't be performing in five years."

    Stores with the lowest valuations, of course, are poor performers with outdated facilities. Wondering if you have a super stinker? "Once you are selling below 80,000 gallons a month and $50,000 a month inside," Kelso said, "desirability really declines."

    Even if you have a great site, it may be prudent to sell now rather than later. Fortune Small Business points out that even "perfect storms" peter out. A growing number of economists believe rising interest rates and higher inflation may put the brakes on the U.S. economy. If the economy slows, getting a great price for your business will become harder and take longer, reports Fortune Small Business.

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