And another thing that
makes me ok with passing on this deal, the issue of race. Let me splain.
I think I mentioned in the introduction of the Blue Diamond deal that the stores are primarily located in small towns and rural communities in East Texas. Texas is in the South and it’s ruby red but, you already know that. So, the issue of race has to be considered. Race matters!
There are five stores
located primarily in communities of color. These stores are not the highest
volume stores and in all likelihood, four of the five stores would not be
branded Texaco. The volume from these stores wouldn’t count towards my
minimum requirements for the Texaco contract; however, the incremental revenue
from these stores makes it better than a good deal. Race is not a big issue with these five
stores, and as a result, there is no worry about backlash related to race.
One of the two larger stores is located in one of the larger towns in East Texas and probably would not be impacted by the race issue I’m about to discuss. The traffic for this particular store would be probably 50/50, local versus transients. It would be a larger store and would have a QSR (quick-serve-restaurant). Its location and the acquisition of this store is a deal-maker, which bodes well for mitigating any impact race would have on the financial aspects of the deal. I could overcome any impact that race might play on people deciding not to support this store just based on volume.
Insofar as the other nine stores are concerned, I can’t risk exposure from the community not being supportive of the ownership. I don’t know if there would be a backlash because of African-American ownership. It sounds really fucked up to say but, it’s the times we live in. The easy answer is best answered in the question, “why does anybody have to know who owns the stores?” I’ll address this in a minute.
The current owner of the stores is either of middle-eastern descent or Asian descent. The current operators are mostly of either middle-eastern descent or Asian descent. The argument could be made that they are not having issues and there should be no consequences with ownership by another person of color. The thing is, I don’t know that and wouldn’t, couldn’t, and shouldn’t necessarily make that assumption.
You may remember a few years ago there was pushback from Asian and middle-eastern-owned convenience stores, so much so a lot of stores either featured an American flag or they would inconspicuously post a sign that said, “American Owned.” I’m sure many of the store owners/operators are/were citizens but they felt it necessary to have to explicitly say they were “American-owned.” If you’re honest, you know there are still jokes about foreign ownership of convenience stores, 7-11 franchisees in particular. There is a sarcastic saying in communities of color, particularly African American communities that goes, “if it ain’t white, it ain’t right.” If it’s not said, it’s understood. I know that’s fucked up but, I’m not trying to be nice.
A few posts back I referenced an acquisition opportunity that was presented to me to expand my Conoco business. I was an existing multi-store owner-operator and wholesale supplier and needed to expand both my branded-gasoline volume and my retail footprint. The proposal was to purchase six operating stores from a small company looking to cash out. These were ‘dealer’ stores, meaning they didn’t come with a supplier contract from a major oil company. I would have had to convert them to Conoco-branded stores which would have been a piece of cake. Conoco would have been glad to have their flag on these stores. They were good looking stores in pretty good locations.
One store was located in Canton, Texas, actually on IH20. It was branded, Shell. There was one store located in Willow Park, Texas, a small town just west of Fort Worth. There was a store located in Aledo, Texas, another small town just west of Fort Worth. There were stores in Weatherford and Cresson, Texas, both small towns west of Fort Worth. It was the store located in Greenville, Texas that made me rethink and back out of the deal.
Greenville has a fucked-up history when it comes to race relations, fuck that when it comes to black people. Hard stop.
When I was a junior in college I would drive to Commerce, Texas to pick up my sister from college on my way home for holidays or just breaks. To get to Commerce you would have to drive through Greenville, at least that’s the way I went. There was a billboard I would pass entering Greenville that said, “Blackest Land; Whitest People.” I shit you not. It was whitewashed just from age, not because someone had tried to clean it up but it was clear as day, both in message and image, “Blackest Land: Whitest People.”
Given the size of the transaction and my desire to grow my business, significantly, I had a group of advisors, people whose opinion I valued, that I would bounce ideas off of. On the occasion of this proposed acquisition, which I think was about $5-6 million if I remember, we got together to discuss the pricing and strategy. We were at breakfast and I had invited the broker who had presented the deal to me. The broker is a white guy, whom I had met in my dealings with Fina, now known as Alon. I’ll have to talk about Fina in a later post. I kinda liked the broker guy, primarily cause I liked his former boss and he wasn’t offended when I was candid about shit I perceived to be fucked up.
Anyway, at breakfast after talking about price and my telling they guys I thought the price was kinda high but it did cash flow and service the debt and the stores could be easily integrated into my existing operations, it hit me, “Greenville!” I hadn’t thought about Greenville before but it hit me during our meeting and had no choice but to put that shit on the table. I was trying to talk through the deal and I would have been doing myself a disservice had I not put this question on the table.
Out of the blue, with no setup, I asked the question, ‘do you think white people, particularly in Greenville, would continue to support the stores with a change in ownership to a black guy?’ I wasn’t trying to be dramatic but the shit just hit me. What if they decided to not support a black-owned business in Greenville or any of the other small towns where this group of stores was located?
The guys at the table were kinda thrown off a bit but so was I. I looked at the white guy and he was all fucked up. He said, ‘I don’t know why they wouldn’t.’ I brought up the sign and he said, yeah he had heard about it but he thought times had changed. A couple of the other guys had heard about it as well but had never seen it. One of the guys had actually seen the sign. Nobody said don’t do the deal but it was something to think about.
Fuck that. Would you spend $5-6 million and not be 100% certain of your investment, if you are a person of color when one of the risk factors is something like race? I mean, you can’t control or predict how people are gonna act or react. Sure, you can try to put management in place to shield you from the public or can you? Look, the hate and disgust that a “red community” has for a foreigner are different, in a lot of cases than the hate and disgust a “red community” might have for an African-American. Man, that is awfully fucked up to think about and to actually say. But, in the age of Trump, would you be willing to make a $6 million bet that there would be no impact?
Needless to say, I walked away from that deal.
One thing of note. My dad owned a convenience store, which I think I have mentioned before and will devote a complete page on that experience for both him and me. The store was located in a very rural community. I was young but keenly aware of race shit in our society at the time. I don’t ever recall him having any expressed issues relating to race. There were some more subtle issues he had to deal with but nothing that negatively impacted his business. One reason that was the case, for a few years he was the only game in the community, I mean within five miles. This was the early 70’s so race was an issue then as it is now but still, any negative impacts of race were mitigated because his store was it!
There isn’t blatant hostility in the communities where the stores subject to the Blue Diamond deal are located. At least you don’t see a big-ass billboard staring you in the face, in these communities but you can see a Confederate flag on the way to a store. With Trump, racism is at a feverish pitch in some parts of the country so you don’t know.
I think there is a way to mitigate some of the exposure and with 14 stores I could probably limit any downside financial exposure. But, when you combine all the other risks factors, like new construction (demo and rebuild) in some locations, lack of historical data, environmental exposure, people, bullshit seller and what amounts to ‘start-up’ risks it’s easier and probably prudent to say fuck it and walk.
Want to know something crazy? The financing sources probably won’t think of race impacting the business, unless there are some people of color included in either the loan approval process from the bank or the committee within the private equity fund. Fortunately, so far in this deal, I haven’t gotten the feeling that the financing sources were concerned about race, my personal race. The interested banks are in California and Chicago and understand the business. If, and I really do mean if, there was a concern about my race, they would have found a way to disengage early. The private equity fund is in Boston and they were impressed with my knowledge of the business and the relationships that I have put together to make it work, particularly the Texaco relationship. They are not concerned about my race at least as far as I can tell.
Candidly, there is not enough diversity on any of those teams to have an appreciation for the risks race might have on the business plan. Wherever I have been and it appears that diversity or I should say the lack thereof, has an impact on the company’s business I try to gently point it out and if I’m in a position to have an impact, I will. I tried to explain that to one leadership team I was a member of and got kicked in the nuts. People of color have the technical skills to make the technical decisions but they/we also bring more to the table that a buncha people just can’t appreciate. The exposure presented by race on this deal would be one of those insights.
I’ll think about how to cover the downside risks some more but as of right now my attitude is, fuck it, given all the other exposures I have to deal with. I might be overthinking it. We’ll see