While mergers and acquisitions have always been a part of the landscape in the convenience and energy industries, our experts believe deal activity is about to heat up to record levels in the months ahead. Despite the fact many unknowns and “what ifs” continue to complicate the environment, multiple circumstances are aligning that should bring new buyers and sellers to the table. Promising opportunities are on the horizon, with the potential to benefit all parties involved.

As we see it, the top six factors building momentum for a surge in convenience and energy deals in the near term are:

1. A rise in divestitures driven by a focus on asset optimization.

Consolidation has been the name of the game over the past several years with major industry players absorbing their smaller competitors. The pendulum now appears to be swinging back in the other direction as companies focus on portfolio management and weeding out their low volume stores and/or those that are not strategically aligned with their go-forward plans. As these stores start to hit the market, they can become opportunities for chains looking to expand into new markets as well as for buyers specifically looking for a value creation opportunity.

2. More exit-ready companies are looking to capitalize on recent growth.

Many companies, benefiting from the growing consumer demand for convenience, have enjoyed record earnings over the past four to five years. With these earnings backing their value, coupled with a positive outlook for future growth in the industry, companies are ripe for acquisition and may be ready to pursue a lucrative exit, adding to the opportunities available to buyers.

3. More capital dollars available for deployment.

While some companies view the healthy convenience retail market and strong fuel margins as the ideal time to cash in, others are looking to reinvest their record earnings by expanding their portfolios. This will bring an influx of strategic buyers into the mix looking for the right M&A opportunities to shape the next chapters in their growth stories. These existing retailers are likely to be aggressive buyers, eager to leverage the current circumstances to expand their reach.

4. An increase in private equity activity.

On one hand, PE-owned platforms purchased before and during the Covid pandemic are coming up for sale as PE holding cycles reach maturity. This promises to boost the number of attractive targets available to strategic buyers. At the same time, with anticipated declines in interest rates, other PE firms are looking to create new platform businesses in an industry with historically ratable earnings, bringing a new group of retailer investors into the market. These PE buyers have the means to pursue larger acquisitions and will generally add to the competition for available businesses, making it even easier and more lucrative for sellers to sell.

5. The potential of tariffs to drive both sales and acquisitions.

While tariffs represent one of the biggest unknowns as companies wait to see what the specifics and the resulting impact will be, expect an increase in M&A in any scenario. Companies hurt by tariffs—for example through delays of shipments into the country, rising costs, or decreasing over-the-road traffic for stores located near international borders—may be more inclined to sell. For businesses looking to expand through building NTIs, the additional cost for imported building supplies may have companies rethinking how they will increase their portfolios and reconsidering the economics of new builds. Already, many companies spend in excess of $8 million on a single greenfield location. With the additional tariff related expenses tacked on top of already rising cost, retailers may start shifting capital dollars away from new builds and toward the expanding opportunities for M&A.

6. The impact of activist pressure on publicly held companies.

Much like tariffs, the role of activists represents another unknown. It is not unusual for companies facing pressure from investors to slow down their own M&A activity. This leaves room for other strategic buyers and private equity firms to grow in this competitive M&A market, shaking up the dynamics and introducing a wider range of opportunities for parties on both sides of the table.

Keep both eyes open and be ready to act.

The key takeaway for convenience retail and energy companies is simply to pay attention to the opportunities the market will present. Undeniably, the landscape is going to look substantially different 18 months from now. Companies need to be sure they’re taking advantage and making the right decisions for their businesses, so they aren’t left on the sidelines.

Of course, this means being prepared to act. Whether you are certain or unsure of the next best transaction for your business, it takes time to be ready for any deal. Both buyers and sellers (as well as the undecided) can benefit from starting the legwork now to optimize their operations and get their financials in order, ensuring they are in the best position to come to the deal table when the time is right. Be sure to stay tuned as our expert advisors stay on top of the shifting dynamics and break down the most critical implications for investors, strategic buyers, and sellers looking to make the most of their next M&A deal.