For this month’s Master Class Interview, we talked with Andy Weber, the founder of Corner Capital — a national advisory firm providing transactional, financial, and industry-related services to the domestic Downstream Energy industry and its related infrastructure.
Andy Weber began his career at Shell Oil Company, serving in various management capacities, responsible investments in dealer and company-operated retail markets. Subsequently, Andy served as an international consultant in Arthur D. Little’s Global Energy Practice (ADL), with a principal responsibility for the downstream strategy practice. He and his team developed the Dynamic Brand Management practice model for ADL’s marketing practice and utilized the methodology for market entries for multi-national energy companies including BP, Mobil, and Kuwait Petroleum.
Prior to founding Corner Capital, Andy served as CFO and President at Roundtree Capital, a private equity group in Santa Barbara, with overall responsibilities for the growth of the business from 100 to 230 convenience stores, while distributing motor fuels for Chevron, BP, Fina, Mobil, and Marathon.
Carl Ray Polk Jr., Elizabeth Bailey, and Kevin Henrick, respectively the managing partner, senior associate, and an associate at the firm, also shared their thoughts in the following interview.
What inspired you to launch Corner Capital?
I was a minority partner in a convenience retailer and fuel distributor, and in 2006 we sold one of our c-store chains in Texas to Alon USA. I had always wanted to start my own business and it seemed like a good time to do so. I also wanted to stay in the industry. It’s made up of good people, and I’ve always believed that relationships are the most important component of any enterprise. Founding Corner Capital has been a great endeavor that provides all these characteristics that I enjoy.
What are some surprising lessons you’ve learned about this industry?
For the past 25 years, industry observers have always commented that "the industry is consolidating". We don’t believe it’s always "consolidating" but adapting and changing to meet the needs of consumer demand and the capital markets. It’s really a dynamic and entrepreneurial industry, fueled by energy both literally and figuratively.
Another surprising aspect is that every part of the country defines convenience differently. California convenience retailers operate much differently than those in the Northeast or Texas.
Lastly, we believe that the major oil companies will be out of retail operations for the foreseeable future in the United States – which is what has created many opportunities for entrepreneurs today.
When determining the liquidity of an asset in a merger or acquisition, what are some of the scenarios you need to consider?
This requires a lengthy answer but in short, each scenario is unique. There’s no boilerplate or template. We consider our clients’ needs for capturing value within the construct of their enterprise, and of course with where the market demand (value) is for particular assets. Fuel distributors and convenience retailers have very different buying audiences, and we need to structure our projects accordingly.
Additionally, every client has different interests in their business after a sale: some like to retain real estate so they can collect rent checks, some want to leave it all behind and go to the beach. Some just want to run their trucks and be done with the rest. Thus, that’s where our industry operating and financing experience comes into play as we work with each client.
What we really focus on with our clients is their personal and business strategy, their business operations, and the values associated with each segment. Most of our M&A work begins with a valuation process. At a minimum, it helps with personal estate planning and in many cases results in a desire to monetize their years of hard work.
What are the greatest challenges facing lenders today in this property type and what advice do you have for dealing with them?
We think there are a couple of issues: advance rates and environmental. Advance rates (loan to value) are constrained by regulatory requirements, and many lenders try to treat convenience retailers as pure real estate because of these regulations. This hampers financing available to the industry, because in most cases a convenience store is more valuable than simply the underlying real estate – but lenders won’t recognize this.
Environmental issues have always been an issue to lenders, primarily those not familiar with the state funds and private insurance in place. Lenders are over-sensitive to the environmental risk, and even in foreclosures they don’t have to step into that liability.
How is the development of alternative energy sources affecting lending on petroleum related properties?
We haven’t seen alternative energy – whether CNG, electric, or hydrogen – impact lending to convenience retailers! In fact, banks still want to lend to "brick and mortar". While alternative energy sources are a hot topic and gaining traction, our dependence on petroleum products is a slow ship to turn. We believe alternative energy retailing will fill a small demand-need in the short term, much like a merchandise product. Unless regulatory requirements force alternative energy outlets (although there are not enough cars on the road to support them), there are plenty of lenders willing to finance our industry.
What is fascinating, though, is that one of our clients in Weatherford, Oklahoma, has 6 dedicated Tesla charging stations at his cornerstone truckstop. That’s creativity and forward thinking on both of their parts! And will be more prevalent in the future, especially in urban areas.
What’s the most exciting thing on the horizon for the downstream energy industry?
We think one of the best aspects of the retail component is the integration of technology – both for marketing purposes and for transactional purposes. GasBuddy is a good example of the result of purchasing psychology; consumers cherry pick their fueling outlets based on price, while allowing retailers to market immediately and directly to their customers. The vast amounts of data now available allow owners to make pricing and strategy decisions from their phones with real-time information. Technology has made our industry, like many others, far more efficient than ever imagined.
A more foundational event on the horizon will be whether, and how, retailers transform to a new environment of energy distribution. Retailer will always have the advantage of convenient real estate – it’s going to be a question as to what the next stage of convenient energy looks like that is going to be very interesting.
Lenders can be hesitant to loan on assets in the downstream energy industry because they often involve hazardous substances. Aside from credit quality, what are some ways that lenders can mitigate the risk associated with this?
I’ve only seen a handful of deals with environmental issues so egregious that the deal didn’t consummate. This is where the attorneys and environmental engineers earn their keep. There are various insurance products available to borrowers and lenders that can isolate future liability for both. Additionally, lenders don’t have to "foreclose" on bad loans; they can always find receivers or other structures that keep them out of the chain of title.
Is it important for borrowers, lenders, and other stakeholders to use specialist firms when dealing with special-use properties?
Our team is comprised of industry experts –retailing, lending, major oil companies, accounting, and former family business owners. We wouldn’t be in business, frankly, if we didn’t provide value to our constituents, and we work really hard to do so. That value can come in the form of creating "generational liquidity" for family run businesses, providing insight into best practices from across the country, or tackling challenges that allow our clients to focus on what they do best – running their company.
In the end, we strive to expertly solve problems and create solutions for our clients in Downstream Energy. Our team really loves what we do, and our clients see that every day. We strive to be approachable, practical, and honest in creating solutions for our clients. We’ve often walked in the same shoes as our clients, and that provides confidence in our services, and ultimately, valuable assistance in reaching their goals.