Best practices for acquisitions

Propane Expo session panelists

Steven Abbate: moderator, managing director of Cetane Associates
Joe Armentano: CEO of Paraco Gas Co.
Daniel Dixon: group director of business development for AmeriGas
David Montgomery: vice president of operations for Crystal Flash
Tim Osterman: vice president, business development for NGL Energy Partners
John Ryan: vice president of business development for Star Gas Partners

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When Steven Abbate first developed a panel discussion on buying and selling businesses for the heating oil industry, he doubted whether experts would be interested in sharing their strategies.

“I honestly wondered, ‘Will these guys really share their ways about buying?’” he says.

Abbate hosted a panel on buying and selling in 2011 at the Atlantic Region Energy Expo in Atlantic City, N.J. To Abbate’s surprise, many people participated in that panel discussion on acquisitions. He adds it went over so well that he was asked to host it two more times at similar regional energy shows.

In recent years, Abbate’s merger and acquisition advisory company, Cetane Associates, has started to assist buyers and sellers in the propane industry. The National Propane Gas Association learned about Abbate’s sessions in the heating oil business and asked him to present a similar panel for the propane industry at the 2016 Southeastern Convention & International Propane Expo in Nashville, Tenn.

For the Propane Expo, Cetane Associates created a panel of five representatives – from AmeriGas, Crystal Flash, NGL Energy Partners, Paraco Gas and Star Gas Partners – to share best practices on buying and selling propane businesses.

“I’d call it a powerhouse of a panel,” says Tom Jaenicke, vice president of propane marketing services for Warm Thoughts Communications, who introduced the panelists in the session.

Although the acquisitions topic might seem intimidating at a glance, dozens of propane retailers showed up to the session, filling nearly two conference rooms. Both prospective buyers and sellers listened to the five panelists’ insights on how to close a deal.

“I thought it went fantastic,” says David Montgomery, vice president of operations at Crystal Flash and one of the five panelists. “All the information from other panelists was solid and I could agree with their perspectives.”

Montgomery admits he was uneasy about participating in the discussion, unsure how the conversation would go. He lightened up to the session a few minutes in, wanting to help session attendees.

“I made peace with the fact that this session served as a way to give prospective sellers comfort on acquisitions,” he says. “It helped them learn what buyers are really looking for.”

The session walked attendees through different stages of an acquisition, starting with the valuation process through closing the deal.

The valuation process

The first step for any potential acquisition requires a buyer to evaluate a seller and its assets. A few key value drivers for a buyer to evaluate include the percentage of company-owned tanks, supply and distribution capabilities, customer demographics and diversification of the business.

“The biggest value driver tends to be the percentage of company-owned tanks for any market,” Abbate says. “More tanks leads to higher value, but there’s other things to look for, as well.”

In some markets, Abbate says, there are many retailers with diversified businesses, offering propane along with other fuels and services. Retailers on his panel have different approaches to valuing diversified sellers.

John Ryan, vice president of business development for Star Gas Partners, comes from a diversified business that offers alternative home services. For his company, having a diversified business is usually a good thing.

“When we see a seller with multiple profit centers, we view it as positive, as long as that business is within our core competencies,” he says.

Paraco Gas is a little more selective in purchasing diversified propane businesses. Joe Armentano, CEO of Paraco Gas, says the company only buys a propane retailer with multiple businesses if those other businesses boost the sale of propane.

“Our No. 1 goal is to sell propane, our No. 2 goal is to sell propane and our No. 3 goal is to sell propane,” Armentano says. “We look at diversified businesses to see how those services will help us sell propane, be it HVAC or dual fuels.”

When trying to put a total value on a business, panelists suggested looking at a seller’s average and normalized business volumes.

“No one should base valuation off a superstar year of gallon sales,” says Tim Osterman, vice president of business development for NGL Energy Partners. “The law of averages has to take hold in valuations.”

Daniel Dixon, group director of business development for AmeriGas, agrees. He often looks at a seller’s last three to five years to get an average value, and he seldom looks at a company’s future expected sales.

“You can look at what might happen to a company if you’re purchasing 10 years down the road, but a lot of variables might affect that,” he adds. “Consider the natural gas expansion up in Michigan right now – that was not even anticipated five years ago.”

As a buyer evaluates potential sellers, Abbate adds that sellers should also evaluate their potential buyers during this process.

“The seller needs to consider what the buyer plans to do with them,” he says. “Consider how that buyer will take care of your customers and what that buyer’s reputation is.”

The waiting game

Making a deal to sell one’s business involves many emotions, Montgomery says, and the due-diligence process can be especially tough on the seller.

“A seller might have lived in this business their whole life and now you’re talking about taking over their baby,” he says. “With the due-diligence process, you’re going to invade their personal space, and that’s kind of a big deal when you start questioning why they did certain things with their business.”

The process can be painful, but the purpose is to ensure the final valuation between the buyer and seller is accurate. Montgomery adds buyers should have a consistent due-diligence process that can be slightly tailored to each company it purchases. Some items he suggests buyers review during the due-diligence process are lawsuits, supply plans, insurance plans, customers, assets, IT, competition and personnel.

Buyers need to have a checklist when going through the due-diligence process with a potential seller and to give sellers a timeline to complete the checklist and prepare information. Dixon says a good system and good records make the process easier for all involved parties.

Once the due-diligence process is complete and a deal is closed, Montgomery says, the buyer should make sure the newly acquired business is ready for its first days of operations by having a training plan scheduled for employees and a reimage plan in place. He says it’s also smart to have a 30-, 60- and 90-day plan to make sure the newly acquired business performs the way the buyer thought it would based on due diligence.

“Company owners want to know how their name will be treated after the acquisition,” Montgomery says. “They want to know that what they’ve built over their lifetime is going to be treated well, and also that it might be enhanced after the acquisition.”

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2015-16 transactions

Here’s a look at the movement LP Gas kept tabs on over the last year, with acquiring companies in bold:

AmeriGas Propane
■ Nine acquisitions (undisclosed)

APP Propane
■ PC Propane & Gas – Montesano, Wash.

Blossman Gas
■ Southern Propane – Jacksonville, Fla.

Cavagna Group
■ Bigas, an Italian company specializing in fuel system technologies for LP gas and compressed natural gas engines

CHS Inc.
■ Merger with Elburn Cooperative – Sycamore, Ill.

Combined Energy Services
■ Merger with Hopatcong Gas Services – Hopatcong, N.J.

Davenport Energy Inc.
■ APB Whiting Oil Co. – Roanoke, Va.
■ Whiting Jamison Oil Co. – Covington, Va.

Eastern Propane
■ Patriot Fuels Inc. – Canaan, N.H.

Energy Distribution Partners
■ Williams Oil Co. Inc. – Towanda, Pa.

Energy Transfer Equity
■ Merger with Williams Cos. Inc. to form energy franchise

Enterprise Products Partners LP
■ EFS Midstream LLC
■ Reliance Industries Ltd.

Ferrellgas
■ Bridger Logistics LLC – Dallas
■ Gasco Energy Supply LLC – Eldon, Mo.
■ Propane Advantage – Layton, Utah

Herring Gas
■ Prentiss Butane – Prentiss, Miss.
■ Southwest Gas – Magnolia, Miss.

iRely LLC
■ AutoFueling Systems, a cardlock software company

J.J. Sullivan Oil & Propane
■ Madison Oil – Madison, Conn.

Marathon Petroleum Corp.
■ MarkWest Energy Partners LP, a midstream operation
Meritum Energy Holdings LP
■ Pico Petroleum – San Antonio

MFA Oil Co.
■ Brownfield Oil Co. – Moberly, Mo.
■ Elaine Petroleum Distribution – Elaine, Ark.
■ Lybarger Oil – Garnett, Kan.
■ R&S Propane Inc. – Dibble, Okla.
■ S&S Oil and Propane Co. Inc. – Emporia, Kan.

Osterman Propane Gas
■ Perry’s Oil Service – Bradford, Vt.

Parkland Fuel Corp.
■ Girard Bulk Service – Saskatchewan, Canada
■ Propane Nord-Ouest – Abiti-Témiscamingue, Quebec, Canada

Power Solutions International (PSI)
■ Bi-Phase Technologies LLC, an electronic fuel injection system manufacturer in Wood Dale, Ill.
■ Powertrain Integration LLC, an on-highway power systems manufacturer in Madison Heights, Mich.

Ray Murray Inc.
■ Best & Langston Inc., a hearth, heating and leisure products distributor in Goldsboro, N.C.
Richgas
■ Bradford Nugas – Bradford, Pa.

River Country Cooperative
■ Pierce Pepin Propane Services – Ellsworth, Wis.
Rural Computer Consultants Inc.
■ Propac (from Data Control Corp.)
■ FuelPak (from Vertrax)

R.W. Earhart
■ Franz Petroleum Products – Bascom, Deshler and Holgate, Ohio

Shipley Energy
■ Smart Click Energy – Boston-based software company

Suburban Propane
■ Propane USA – Margate, Fla.

Superior Plus Energy Services
■ Warner’s Gas Service – Vestal, N.Y.

ThompsonGas
■ Beckett Gas Co. – Cameron, Mo.
■ Como Oil & Propane – Duluth, Minn.

ValvTect Petroleum
■ Energy Additives Inc., a fuel additives company in Battle Creek, Mich.

Westmor Industries
■ Advanced Tank Systems, a commercial truck tank body distributor in Colmar, Pa.

Westport Innovations
■ Merger with Fuel Systems Solutions Inc. to create an alternative fuel company

Editor’s note: Other transactions have taken place over the last 12 months, but some propane industry companies have chosen to keep their acquisitions private. Submit acquisitions news to Editor-in-Chief Brian Richesson at brichesson@northcoastmedia.net.