Plenty of global private equity firms are expected to take a look at 7-Eleven when it comes up for sale, but one party that will be absent from the auction will be Metcash.
Apparently, the grocery chain was approached by 7-Eleven’s advisers to test its interest in a potential acquisition of the retail convenience store owner, but passed on the opportunity.
It will also be interesting to see where petrol station/convenience store operators like Ampol, BP and Viva Energy stand on the opportunity after 7-Eleven last year locked in a 15-year fuel supply agreement with Chevron, taking away that opportunity to capitalise on a deal from a fuel sales perspective.
It suggest the owners are confident of striking a deal with other parties.
The Australian Competition & Consumer Commission may have something to say about a rival owning the business.
Grocery wholesaler Metcash competes with 7-Eleven through its IGA stores, which are mostly owned by franchisees.
Metcash was previously a major supplier to 7-Eleven, but 7-Eleven’s supply chain is now mostly in-house.
Inflation is usually a good thing for retailers’ bottom lines, despite many expressing caution about higher costs and the outlook, but the focus will be the retail margins, and one market source suggests that could be a deterrent for a company like Metcash.
Coles and Woolworths have retreated from the fuel retailing market in the past six years.
It can be a tough area to generate funds.
Yet 7-Eleven is on a high with its performance, generating annual earnings before interest, tax, depreciation and amortisation of about $220m.
Metcash, which operates in the hardware and liquor space under brands such as Mitre 10, Total Tools, IGA Liquor, The Bottle-O and Cellarbrations, prospered during the pandemic when shoppers stocked up on food at their local IGA stores amid lockdowns.
Its market value is currently $3.65bn, with shares closing at $3.78 on Friday.
For the six months to October 31, it generated $125.7m of net profit, down 2.4 per cent from the previous corresponding period, on the back of higher significant items as revenue increased 8.2 per cent.
7-Eleven is up for sale through Azure Capital.
Experts believe such a business is likely to sell for up to eight times its EBITDA.
This would put a price tag on the operation of about $1.8bn.
The sale process, which is yet to launch, is expected to conclude by the end of the year.
7-Eleven is owned by the Withers and Barlow families and operates throughout Australia aside from Tasmania, Northern Territory and South Australia, which creates growth opportunities for the buyer.
It has a licence to operate and franchise 7-Eleven stores in Australia from the US-based 7-Eleven.
It has 750 stores across Victoria, NSW and Western Australia, processing 250 million transactions each year.
Extracted in full from: Metcash unmoved as 7-Eleven hits the market, with hopes of $1.8bn | The Australian