An M&A Playbook for Sunset Industries

In today’s dynamic world, all industries experience peaks and troughs where short-or-medium term volatility influences business strategy and direction. However, what about a long-term wave of change that could significantly impact business operations, financial health, and attractiveness to investors?

For some companies, the term “sunset industry” is becoming increasingly relevant, as advances in technology, changing consumer preference or broader economic shifts present future uncertainty. Historically, examples like Blockbuster and Kodak spring to mind. In 2024, that equates to print media, traditional marketing methods, and, in the case of 7-Eleven Australia (“7EA”), fuel retailing.

In December 2023, the Withers and Barlow families sold their 100% interest in 7EA for A$1.71 billion. 7EA is Australia’s leading convenience retailer with a network of 750+ stores (fuel and convenience), processing c. 250 million transactions each year, and employing 9,000+ people across the corporate and franchise network. Azure Capital acted as exclusive financial adviser to 7EA on the sale.

For fuel retailers, the question of electric vehicle (“EV”) penetration into the road fleet is prominent. 80% of EV charging is expected to happen at home and even the charging done outside of the home can take place at your workplace or in a supermarket carpark while you're buying groceries. The timeframes around the EV transition vary greatly depending on your information source. It’s certainly not a sudden stop and there is a lot of growth available before the peak, meaning existing operators are able to reorient and reinvent themselves for the longer-term outlook, finding new ways to innovate and attract customers into the store.

Another factor exacerbating this period of change is the rapidly evolving consumer behavior around smoking and sugary food and beverages, which are the traditional mainstays of convenience retail.

Safe to say, this sunset is currently glowing as bright as an Olympic gold medal.

In the face of all this change and uncertainty, how do you create value for shareholders and what can we learn and apply to other processes?

• Preparation and diligence: Thorough vendor diligence from credible advisers is crucial to assess the long-term viability of assets, potential for operational improvements and the impact of industry-specific trends. In our case, focusing on underlying store performance (backing the base case) and proving a defendable growth path using a comprehensive financial, legal, environmental and commercial diligence package was key. The cost and time investment upfront was critical to delivering value through the process.

• Innovation and transformation: In a declining market, you can either sink or swim. Positioning and instilling a skillset in a business for transformative growth is key to being the most attractive horse in the race for investors. This means adaptive operating models (inherently required in consumer-facing businesses exposed to changing trends and preferences) and use of technology in the investment thesis to demonstrate how these are being used to outpace competitors.

• Robust growth plan: When the longer-term looks uncertain, everyone will have a view on the best path forward. Like solving the conundrum of why your favourite sports team isn’t winning, everyone in the stadium becomes an expert. For a business up for sale, that means you can’t please everyone. The important factor becomes having a clear strategy with robust underlying assumptions and management buy-in. A rudderless ship with a severe storm on the horizon is not going to fair well. One with a strong captain at the helm has a better chance of getting out alive.

• Valuation: Everything has a price. When speaking with buyers, we covered the spectrum; Private equity were looking at the transformation story, multi-national oil companies were focussed on maximising fuel volumes up to the peak, strategics were accessing synergies and building their own sunset armour through the relative strength of 7-Eleven’s convenience offering and geographic presence. As the adviser, our goal was to maximise optionality and maintain competitive tension throughout.

• Speed and certainty: It’s well understood that time impacts deals. And none more so than an industry facing an uncertain future where the value proposition can shift quickly. This places importance on timing the window. Value can be traded for a certain and efficient outcome for shareholders.

Overall, our role as financial adviser is to achieve the best outcome for shareholders. All transactions involve complexity. It’s our ability to understand and respond to changing circumstances with strategic foresight and innovation that sets us apart.