Mark Radosevich joined PetroConsulting, Inc., in November 2002 after 20-plus years of extensive service with both domestic and international petroleum companies working in virtually all areas of the downstream business. In 1980 he founded International Corporate Services, a marketing and brand development firm that represented numerous international petroleum companies including Esso InterAmerica, Texaco Latin America/West Africa, Shell Oil Caribbean, Caltex, Elf Aquitaine and Castrol. In 1999, Mark joined Petroleum Realty/Lehman Brothers' working in various capacities including National Accounts Manager, Southeast Region Manager for loan origination, and Corporate Marketing Manager.

Web: www.petroconsulting.com

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Recent Questions:

MERGERS & ACQUISITIONS

1) I'm thinking of selling my business, which includes my company operated retail stores and a number of dealer accounts (some with contracts, others without contracts). What value can I expect out of both sides of my business?

Initial values of businesses are based on multiples of cash flow or EBITDA(R) (Earnings Before Interest, Taxes (Income), Depreciation, Amortization and Rent). They're a many shadings of the multiple, when it comes to each component part of your business. Store values are increased or decreased based on several factors, including geographic area, age and condition of the stores, barriers to competition, branded versus unbranded, etc., but generally a multiple in the range of 4.0 to 5.5 for properties owned in fee and 2.0 to 3.5 for leasehold sites can be expected.
As to the dealer accounts, the value of these accounts depends on how strongly each account is "tied" to the marketer by contract. If the supply agreement is based on a contract tied to real estate or with other tangible security, i.e., equipment, the multiple can be as high as 3. If the agreement is with no contract, the multiple is likely to be 0.

2) I'm in the market to buy another company. The seller offers 100% of the stock in his company for what I feel is a fair price. Is this a good deal for me?

There are circumstances where purchasing the company through buying stock may be advantageous. However, when you buy stock in a company, you buy the company's assets, but company's liabilities as well, which may or may not be known or disclosed during the transaction. In addition there are tax consequences that you must be come aware of.

Buying only the company's assets generally protects the buyer from the
company's liabilities. Of course, you should always seek legal advice before entering into any buy/sell transaction.

3) I've signed a Letter of Intent to sell my business to another marketer. My advisor tells me it's to my advantage for my attorney to draft a formal Purchase & Sale Agreement. It's going to cost a few thousand dollars for my attorney to draft it, why shouldn't I have the buyer's attorney draft the P&SA and save the money?

A key element of negotiating is for your side to draft the agreement. By having your attorney draft the P&SA, you'll be sure that all of the key elements of the transaction are stated in the manner you want them. It will be up the other side to agree to change them. Your advisor is giving you good advice.

FINANCING

1) I'm looking to refinance my current debt to take advantage of lower interest rates. What should I be looking for?

If your one of the companies that acquired debt through a securitized lender in the late 1990s then you likely have a large pre-payment penalty. The current lender should be contacted to determine the size of the pre-payment penalty and if refinancing with the penalty is a good business value for you. You should also seek the assistance of a professional, since these penalties can be negotiated depending on whether or not your loan has been sold or is being held in the lenders portfolio. In addition to interest rates, you should also be looking at improving loan term and amortization schedules.

2) I plan to build two to three new sites within the next 3 years. How can I convince a lender that these will produce enough cash flow to finance the debt?

Financing new-to-industry sites require a site study to forecast fuel volumes and inside sales for a minimum of three years. Based on the site study, you'll need to prepare a business plan using conservative margins, etc. to indicate the new site will cash flow and pay off debt until the new site stabilizes. We can recommend a professional, well-respected and qualified company to assist you in evaluating a potential site. It's recommended that a qualified professional prepare the business plan, which would then be incorporated into a loan package.

3) I've made a deal to acquire a number of retail stores. How can I be sure of getting financing?

Forget what you may have heard about the unavailability of acquisition financing. Financing for good transactions is available through any number of sources. If your local bank is reluctant to finance the transaction for you, you'll need some expert advise on where to go and how to put the financing deal together to make it attractive for you.
A lender looks at two components when considering making a loan. First, the acquisition has to be purchased at an economic value and the demonstrated cash flow from the stores produce enough income to cover the new debt plus other expenses. For value information see the first question above, under the heading of Mergers and Acquisitions.
Next, your existing companies balance sheet must show enough equity (assets vs. liabilities) to make a lender comfortable about extending new debt. Lenders, whether banks, pension funds, insurance companies, REIT's will want to see a full picture of your existing companies corporate structure. You'll need to produce both corporate and personal financial statements as well as recent tax returns amongst other information.


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