SALT LAKE CITY-- Ten years ago, the propane industry was fragmented, with many regional distributors happy to be the big fish in small ponds.
A change in the federal tax code that opened up the development of MLPs--or master limited partnerships--changed that to the point where the propane industry today is generally owned by three major distributors, MLPs that consolidated the industry.
Is a similar consolidation possible for the convenience store industry? At least one financial expert says yes.
"Ten or 15 years from now, you will probably see three, four or five MLPs that control the c-store piece," Mark Huhndorff speculated during an Outlook Leadership Conference panel discussion on the "Current State of the Capital Markets & Capital Innovation."
Huhndorff, managing director of Dallas-based Raymond James, which recently acquired the Morgan Keegan investment banking firm, compared the c-store industry to the propane industry of a decade ago. "Ten years ago, the propane industry was like c-stores today, very fragmented," he said. "Today, through MLP consolidation, there are really only three propane MLPs. They own the industry. … Similarly, we see a wave of consolidation coming in the [gasoline] wholesale/distribution business."
Huhndorff and his colleagues are quick to add, however, that even if the MLPs--a specific type of publicly traded partnership that allows the pass through of operating results directly to unitholders--do buy up c-store real estate across the country, they'll still need multiple operators to work the sites.
"Quality operators are still very necessary to make the MLP strategy work," said Scott Garfinkle, also a managing director at Raymond James, noting that MLPs make their money on rent and gasoline margins. "Someone still has to operate the stores and make them work."
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