To Sell or Not to Sell? Stay Tuned

By
Kenneth Shriber, Managing Director, Petroleum Equity Group

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A quantum shift in the U.S. retail fuels business has happened over the past four to five years. The age of the super jobber has been stamped in the history books. This evolution was documented along the way in CSP’s “Rise of the Super jobber” story in January 2011, and often in this column.

What is unknown is the next trend in the downstream retail gas and convenience-store business. Where will growth come from? How will competition be affected and change? Well, many are predicting a new wave of acquisitions of smaller distributors by large jobbers who wish to grow even larger. While I agree directionally, the question of whether it is a good time for owners of these smaller companies to sell to a bigger fish is more complex.

At the time of this writing, a strong case can be made to sell. Rack-to-retail margins have been robust since mid-2011. Marginal store closures have occurred across the country, leaving that volume transferred to the other nozzles in the trade area; while we are not at the peak volume levels of 2006-2007, store volumes are stabilized and even growing in some markets. And the Energy Information Agency (EIA) predicts a marginal growth rate of 0.2% per year for the next 10 years or more. Also, sale prices of portfolios of retail gas assets are up and in some cases approaching the peak values and EBITD Amultiples of the past decade.

With a canvas filled with this many positive strokes, why not arrive at an endpoint, sell your company and go out on top? Several TV shows, such as “The Sopranos,” “24” and “Seinfeld,” all ended when ratings were at historic highs.

My company interacts with many types of jobbers: those that continue to be owned and managed by the original founder, others that have multiple partners, and some that are owned by several second- or even third-generation family members. In many of these cases there is not a unanimous “yes” for selling the business. In some cases it comes down to differences in work horizon. This is also an emotional decision for owners who have expended their blood, sweat and tears over many years of building their businesses through good and bad economic cycles. There is often a history with partners and/or family members who may not have always seen eye to eye over the years.

So ... what to do?

It is best to approach the decision to sell with consideration given to several factors:

  1. It’s More Than a Business Decision:Write out the pros and cons for you and your family personally, and for you professionally. Are you mentally ready to exit and end your career, and is your family ready to have you around more? Are you planning to spend more time with family, travel, begin a new career, spend time with hobbies, etc.?
  2. Post-Sale Plan: Consider what you want to do with your sale proceeds after you turn the company over to the buyer, and whether those proceeds allow you to achieve your exit plan. Are you planning to invest in another business or a vacation home, or dabble in philanthropic efforts?
  3. Sale Structure and Transition Planning: The key here is to first decide if you want a total cash-out. If your buyer is a private equity firm that wants to grow the business, they may need your help. In such cases, they may offer you a valuable incentive package to work with them to grow the company further. Some partners/family members may wish to remain in or exposed to the business they are cashing out. They may not want to completely exit or retire, and may want to stay on for a year or more and assist with transition, or simply continue in their role of operating the business. Build that into the plan with the buyer.

4. Tax Planning: This must be examined to minimize your tax burden upon sale. There are some tax-advantaged structures that allow for this as well as for estate-tax planning. Consult a CPA for the best accounting and tax advice.

All of these topics should be discussed in advance with all partners and owners, as well as with potential buyers or investors. You would be wise to engage an adviser with specific experience in buying and selling fuel jobbers and retail chains to avoid missteps.

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