C-Store Industry M&A Updates

• M&A Demand. Remains strong especially for more scarce quality assets with supply contract flexibility. Flexible contracts open doors for alternate brands, changes in classes of trade, and tax savings for both parties.

• M&A Supply. Top of the industry buyers are still plentiful, but cautious at high multiples.

• Money plentiful. Banks, REITs for sale-leasebacks, and private equity/private debt, but getting most expensive in over eight years.

• Inflation too high. Two percent Federal Reserve Fed Funds target rate is unrealistic for AI growth economy, but even AI-related costs are increasing.

• Labor. Low end wage earners plentiful for now, but too much debt. Store managers and solid overhead employees are scarcer and expensive.

• Customer base. Same position as our labor force. Same store volumes of fuel and store items soft. Game changing foodservice is solid for industry leaders. They can take business from other industry players, QSRs and restaurants. Tipping is an added cost at restaurants.

• Fuel margins. Refiners are offering excellent deals for long term contracts, branded or unbranded. They often require ROFRs to further control long term volume, which impairs, but does not kill, M&A transactions.

• Store margins. Ok, and inflation has helped.

• Foodservice. Leaders can achieve 65% gross margins after waste. Scale is required, as some programs lose money, but might help other category sales.

• General expenses. Still increasing, led by insurance, maintenance, benefits, etc.

Summarizing, the environment for M&A is still favorable, and until recently, higher fuel margins have often offset lower volumes and higher expenses. Normally, soaring prices bring high volatility favorable for retail margins, but I have been surprised to see the softness of overall oil prices with two major wars in progress.

AI is bringing constant changes, but the combination of large capital requirements on the front end of the expected ROIs, while the U.S. ratio of Sovereign debt to GDP is up to 1946 levels, is very concerning. The big AI players and their backers are setting up special purpose entities to give them protection – they hope. There are even rumors of a replacement agreement for the U.S. Dollar backing, potentially designed to reduce the strong Dollar which does hurt our exports, but is potentially inflationary-- an unintended consequence.

Our industry stays “in favor” and is resilient as shown in recent IPO demand at very favorable multiples. Also, many sellers have complained there are no good options for investing proceeds from a sale. Well, the only good news about higher interest rates is that money generated from sales can now be invested at higher interest rates.

Please call at your convenience to learn more about the above comments and how NRC can show you the marketplace of quality buyers and suggest financial alternatives rarely available historically. All companies, large or small, plus any and all forms of petroleum-related assets and wholesale fuel supply businesses.

Jeff Kramer

jeff.kramer@nrc.com

(303) 619-0611