April 2, 2024
What is my store worth?
This is a common question we get from store owners. Convenience store values remain strong. Currently there is lack of inventory, with an abundance of buyers seeking to acquire stores. Recent interest rate increases and lenders being more cautious has dampened the activity of less qualified buyers. Many of our recent listings have gone under contract in a matter of days or weeks. The lack of inventory is keeping prices elevated. Higher values are also due to many owners having strong earnings from their motor fuel sales.
The value of a store is dependent upon many factors: the earnings history, location, age of building and tanks, location, competition, and location. As you might guess, the location of a store is probably the most important factor – this ultimately determines a store’s earning potential.
Some of the other elements that we take into account: Is the store located on a street with strong traffic? Is the site easy to enter/exit? Who are the competitors? How old are the tanks? Does the building need renovation? Is there a co-brand tenant?
When we are developing a recommended selling price one of our first tasks is to review the volume and profit/loss statements. We are looking at volume trends, in-store department revenues, gross profit margins, and operating expenses. Using the net income we add back certain expenses such as depreciation/amortization, interest, federal taxes, and owner related expenses such as auto expenses, owner health insurance, and owner compensation.
We also add back rent paid for the real estate if both the real estate and business are controlled by the owner. Our purpose is to estimate the actual annual cash flow of the store.
The selling price is a multiple of the store’s earnings. It is similar to the price-to-earnings ratio of the stock market. After we have developed the store’s earnings we use an earnings multiplier to estimate the selling price. It is a simple calculation:
Other factors must also be considered and the price adjusted accordingly. Will the buyer need to complete renovations? Upgrade tanks or dispensers? Is there additional rental income? Does the property have excess land?
Applying the correct multiplier is essential in developing a realistic selling price. The next few pages provide the history of valuation multipliers for c-stores in New England.
The chart to the right shows multipliers for c-stores in New England since 2015. Marginal and underperforming stores typically sell at multipliers of 4.0x. Top performing stores sell for 10x to 12x. The average multiplier in New England has ranged from 6.0x to 7.3x over the past eight years.
A slight decline in the multipliers is evident in 2023. This is likely due to increasing interest rates and conservative underwriting by area lenders.
The multiplier by State indicates that Connecticut and Massachusetts c-stores have the highest average at 8.1x and 7.6x. Maine, New Hampshire, and Vermont have average multipliers of 5.9x, 6.2x and 6.1x, respectively.
A store in Massachusetts with an EBITDARL of $400,000 would likely sell for $3.0 million ($400,000 x 7.6), versus a store in Maine with the same earnings would likely sell for $2.50 million ($400,000 x 6.2).
Stores with low motor fuel volumes sell for an average of 5.0x to 6.0x earnings, while stores with motor fuel volumes of 2+ million gallons per year sell for 7.4x earnings.
A store with earnings of $250,000 and motor fuel volumes less than 1.0 million gallons annually will likely sell for $1,375,000. A store selling 2.0 million gallons annually with earnings of $400,000 will likely sell for $3.0 million.
This final chart shows the multipliers for stores based on that store’s actual earnings. Stores with low earnings will generally sell 5.8x to 6.0x earnings. Stores with higher earnings will sell at 7.75x to 8.x earnings.
A store with earnings of $250,000 will likely sell for $1.5 million. The highly profitable store with earnings of $750,000 would likely sell at a multiplier of 8.0x, for a total price of $6.0 million.
The value of a convenience store involves many factors and all must be considered. The use of valuation multipliers is a common practice with appraisers. The methodology is straightforward but is highly dependent on the accurate development of the store’s annual earnings.
You have built a successful store with many years of hard work. When you decide to sell you want to get the best price. The proceeds from the sale will fund your retirement or next investment. This is an important decision. We are experts at valuation, yes, but we also have an extensive network of buyers. We also work with other professionals that will be involved in the transaction; lenders, lawyers, environmental engineers, appraisers, and the many state agencies. Selling a store is a fairly complex transaction. It is a difficult task to do, and even more difficult while trying to run your own gas station business.
We review and analyze hundreds of profit and loss statements each year. If you would like a review and consultation of your store’s earnings please give us a call or send us an email.
Please visit our newly designed website for more information about our services and see the stores we currently have for sale.
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