Potential M&A Impacts of The Middle East War

Our industry felt quite strong about business conditions for 2026 at the beginning of the year, as positive worldwide non-inflationary growth seemed to help the otherwise unclear transition for the anticipated promises of Artificial Intelligence. Key factors were reasonable interest rates, readily available funding, and good consumer spending and industrial growth, all supportive of a solid M&A market. Perhaps the biggest long-term uncertainty then and now is our large and growing world debt, often led by the United States, but with hopes we could lead and grow our way out of it provided inflation was stable. It seems to me that a 3% inflation rate coupled with fast growth from AI is a strong formula for success.

The beginning of March saw the start of the current Middle East war. Like Vietnam and Iraq, we are finding it is difficult to wage war halfway around the world in spite of our technology. In particular, the threat of a long-term shutdown of the Strait of Hormuz is also quite different because losing 20% of the world’s main sources of oil and natural gas energy and some of their derivatives is so serious to inflation, shortages and supply chain issues are bound to dramatically impact all commerce in a short time.

A good economy for businesses making capital decisions needs stability and predictability. Other uncertainties include the midterm Congressional elections this fall, a very important summit meeting between the U.S. and China, plus an unresolved European War, all of which could adversely affect market interest rates and the economy in general.

M&A was showing some signs of picking up prior to the Iranian blow up, arguably helped by perhaps some of the best market conditions for sellers we have ever seen. First, most companies continue to have record or near record 2025 profits, despite often lower fuel and store volumes and rising expenses. At the same time, buyers have reasonable interest rates, and ample capital availability including their own cash and book equity to borrow from. They also have better assurance of asset step ups and rapid depreciation allowed on new acquisitions from the Trump Tax Bills. Hopefully, this war ends quickly. Some economic damage is already showing, so things will not get back to ‘normal’ for some time. Oil prices would slip, but likely not for a while and maybe long enough to stimulate domestic drilling. For strong companies in our convenience industry, the world will go on. Many companies have seen their values dramatically increase the last few years, often far more perhaps ever imagined even in long term plans.

NRC would like to discuss with you the many ways of taking advantage of these increased values and potential strategies that can provide cash, income streams, and often ongoing management opportunities for some company sellers. As examples, we can provide creative options for companies with multiple owners, including family businesses wanting to settle with family members, yet have some ongoing ownership and/or management for some of the owners or family members. Some sellers may not be as optimistic about real estate investing at today’s prices. There are many options depending on the owners’ objectives, as well as the mix of units that buyers are willing to lease as part of an overall transaction.

A simple example will demonstrate how pre-tax value can be created in today’s marketplace. Values exclude inventory.

Outright Sale

• 10 owned stores and property, all making $250,000 each/yr

• $2.5 mil four-wall store cash flow

• 9x purchase price multiple

• Gross proceeds, $22.5 mil

Lease all 10 stores and property

• Quality tenant, assume 2.5:1 assumed store cash flow coverage ratio before rent, with a primary lease term of at least 15 years and up to four five-year renewal terms.

• Assumed cap rate, 5.25%. but increases as tenant financial strength decreases

• Present value of rent, $19.05 mil

• Remaining free cash flow after rent, $1.5 mil/yr

• Assumed selling multiple on sale, 5.5x, or $8.25 mil.

• Gross proceeds of $27.5 mil.

• Average multiple based on present value, 10.9x

The above example could be only a portion of a company sale as part of the negotiation, and again are pre-tax. Each company’s calculations are different based on the quality of its assets and by store valuations, leading to subsequent negotiations. NRC specializes in assisting sellers with achieving their objectives and matching them with the right buyers and their objectives. Complicated yes, especially in today’s fast changing world, but that is our expertise based on decades of collective industry experience. NRC’s competitive negotiation process is designed to show you the market, plus providing legal, financial, and planning advice to optimize your sale.

Looking forward to seeing you at future conventions including MPACT, SOI, SIGMA, TFFA, and others. Or please call any time for a further discussion or to arrange a visit in person for presentations on markets.

Jeff Kramer

jeff.kramer@nrc.com

(303) 619-0611