Convenience Store & Fuel Distribution M&A Update – April 2024

Convenience Store M&A Remains Strong, Acquirers Prioritize In-Store Offerings

Capstone Partners latest Convenience Store & Fuel Distribution Market Update reports that the Convenience Store & Fuel Distribution sector has continued to demonstrate significant recession-resilience through year-to-date (YTD). This has been evidenced by an uptick in U.S. store counts and merger and acquisition (M&A) volume. Of note, there were 150,174 U.S. convenience stores in 2023, an increase of 1.5% year-over-year (YOY), according to the National Association of Convenience Stores (NACS). This rise marks the first increase in four years. Single-store operators have continued to comprise the majority (63.1%) of sector participants in 2023, creating a heavily fragmented market ripe for consolidation. Market fragmentation and secular trends—such as a higher cost of capital, elevated overhead costs, and electric vehicle (EV) adoption—are expected support deal activity in the long-term, as Capstone Senior Director Jesse Betzner noted in a recent Convenience Store Products (CSP) article. Capstone anticipates sector transaction appetite to remain healthy throughout 2024, especially for participants with diversified in-store offerings.

M&A activity in the Convenience Store & Fuel Distribution sector has remained healthy, with ten transactions announced or completed YTD. Deal flow in the sector has stayed on pace with the prior year period (nine deals). Although this marks a modest YOY increase, transaction activity in the sector has continued to outperform the broader Consumer industry which registered a 29.5% YOY decline in 2023, according to Capstone’s 2023 Consumer Industry M&A and 2024 Outlook Report. In addition, Convenience Store & Fuel Distribution M&A volume growth outpaced six Consumer sectors in 2023, according to the report. The resiliency of sector M&A activity can be attributed to the scalability of convenience store chains and major oil companies increasingly penetrating the space organically and inorganically.

Strategic buyer activity in the space has continued to eclipse financial acquirer volume. Strategics accounted for 90.2% of 2023 deal flow and have comprised 100% of transactions YTD. While sponsors have been increasingly showing interest in platform investments, strategics are anticipated to drive the vast majority of deal activity in 2024. Private strategic acquirers have remained the dominant buyer type in the space, comprising seven of the ten transactions YTD. Smaller store count operators have continued to attract strong strategic and financial buyer interest. Of note, target companies with less than 50 stores accounted for 80% of sector deals in 2023. This trend has continued through YTD, with sub-50 store count operators comprising 70% of transactions. The median store count of sector M&A targets rose to 11 in YTD 2024 from ten in the prior year period as strategics have bolstered geographic footprint in high-traffic areas.

Also included in this report:

• Why the M&A market has continued to favor smaller target companies with less than 50 stores.
• How average sector purchase multiples have fared through YTD in comparison to the broader Consumer industry.
• Why major oil companies have increasingly penetrated the sector via organic strategies and M&A.