The Growing Influence of Private Equity

VPS, MACS discuss how financing trends will affect their growth

Steve Holtz

Earlier this month, 99 Cents Only Stores Inc. was acquired by affiliates of two private–equity companies for approximately $1.6 billion. While not a convenience–store chain, the 99 Cents Only sale is the latest deal in which a retail chain was bought out by private–equity interests.

The trend has permeated the c–store industry at several levels, but perhaps most notably in the cases of Mid–Atlantic Convenience Stores LLC (MACS) and VPS Convenience Store Group.

In exclusive interviews with CSP Daily News, executives from both chains explained the growing interest from private–equity companies and their respective chains’ goals for the near future.

“Private equity has a lot of options; there’s a lot of money sitting on the sidelines,” said Don Bassell, CFO of MACS, Richmond, Va. “This is a very fragmented industry. I think private equity just recognizes that there’s a lot of value to be had, and the value is to invest and grow, to develop the leverageable infrastructure so you can keep on building, as you grow your retail chain and also build your wholesale side.”

Initially formed in mid–2010, Mid–Atlantic Convenience Stores was created by the consumer–focused private–equity firm Catterton Partners to acquire convenience stores in the highly fragmented convenience store industry. In June 2010, MACS acquired a majority interest in Uppy’s Convenience Stores Inc., and 170 convenience stores/fuel stations from ExxonMobil.

Today, MACS is comprised of approximately 300 company–owned and dealer–operated retail locations throughout Maryland and Virginia, along with a wholesale fuel distribution network.

“We’re building our infrastructure,” says Bassell. “We’ve pulled a lot of people in from the industry. We’re actively out there in the market looking for deals. “We’re looking to almost double our size in the next three years. So we’re very aggressively going after that.”

Similarly, VPS Convenience Store Group is the result of a private–equity company entering a new channel of retail. Sun Capital Partners, a private–equity firm based in Boca Raton, Fla., with a history in restaurant and big–box retail investment, bought the Village Pantry c–store chain as part of its purchase of Indianapolis–based March Supermarkets in late 2006. In May 2007, Village Pantry was spun off from Marsh.

Soon after, Sun picked up 33 Next Door Store locations from Imperial Co., Mt. Pleasant, Mich., and nine AmeriStop Markets from Petro Acquisitions Inc., West Chester, Ohio. In early 2008, Sun purchased the Worsley Group and its 122 stores based in Wilmington, N.C., and Li’l Cricket Food Stores, an 88–store chain based in Spartanburg, S.C.

Today, VPS Convenience Store Group operates 419 stores throughout the Southeast and Midwest.

“There are a lot more equity partners in the business. So that bodes well for our industry,” Jeff Turpin, chairman & CEO of VPS, told CSP Daily News. “The capital markets are better. The banks tend to be lending now and asking for lower loan–to–value percentages.”

For VPS, that means keeping an eye on sale–leaseback opportunities.

“A lower rate for us lowers our break–even rate at the store,” he said. “More sale–leaseback partners gives a little bit of a competitive advantage so you’re not having to go to one partner; maybe [you can] get a little better price from someone else. And also, I think some of them are not just focusing on the real–estate aspect of it, maybe they’ll lend a little bit more on the leased properties, where they don’t actual have the title for the property.”

Bassell agreed. “It’s easier to get debt; it’s easier to do acquisitions; it’s easier to increase your leverage,” he said. “Not only from the debt market, but also from the REITS; they’re also coming down to much more favorable rates, and the inflation fears are gone. So people are able to do deals and be more active in the market.”

In the 99 Cents Only Stores deal, the buyers are Los Angeles–based Ares Management LLC, a global alternative–asset manager and SEC–registered investment adviser with approximately $43 billion of committed capital under management, and the Canada Pension Plan Investment Board, a professional investment management organization that invests the funds not needed by the Canada Pension Plan to pay current benefits.

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