Done Deal

Tom Klein visited each individual office and broke the news to tearful employees that the family’s 46-year-old propane business was being sold.

Franklin and Judy Welch felt like they were strapped to a roller coaster, zipping up and down the track at breakneck speeds, throughout their five-year journey to sell the business that had been the family’s livelihood since 1935.

Thirty-five years after forging into business with “a pickup truck and $500,” a little soul searching helped Joe Sternola realize that his employees could carry on without him.

Rarely is it easy for an owner to sell his company, especially when it’s been in the family for generations. The business side offers stiff challenges as well as rewards, and the personal side takes its toll on emotions.

The following stories describe those emotions and provide an inside look at the journey traveled by eight propane marketers who eventually consummated the deal.

Hancock Gas Service

FINDLAY, OHIO

Like so many other family-owned propane businesses, the seeds of Hancock Gas Service in northwestern Ohio were sown as a supplemental crop to the local plumbing, heating and roofing business run by Tom Klein’s grandfather as the post-World War II building boom spurred demand for residential cooking and heating fuel in the late 1940s.

Tom Klein

The small bottle service took legs in 1956 when Klein’s father opened the bulk business with one 18,000-gallon tank and a two-story farmhouse in Findlay, about 45 miles from Toledo. He and one other man set the tanks and hauled the gas with no indoor facilities to work on their rig.

HGS grew steadily along with Findlay – home to Fortune 500 giants Marathon Oil and Cooper Tire – through the 1960s. By the late 1970s, healthy tow-motor sales boosted the total load from traditional residential and agricultural sales to 4 million gallons. The company added satellite plants in 1969 and 1989. By the end of the century, Hancock Gas was on the cusp of cracking LP Gas Magazine’s Top 50 retailers with sales of more than 7.2 million gallons to almost 8,000 customers in 22 counties.

But the dawn of the 21st century brought changes that rocked the business landscape. Wholesale propane prices went on a rampage, skyrocketing from 31 cents per gallon in June 1999 to an unprecedented 77 cents by January of 2001 and back down to 29 cents just 12 months later. The volatility pushed independents to the brink and beyond as irate customers grasped for every penny of savings.

For HGS President Tom Klein, who started driving bulk trucks and setting tanks full time after leaving college in 1978, the relentless price-cutting competition was wearing on him.

“It was getting to be unmanageable for us to make buying decisions due to volatility of prices with 35- to 40-cent price swings. Plus, our market was mature,” recalls Klein, who sold the company’s four customer service centers and two satellite plants to Inergy in 2002.

“We had set a lot of tanks, and by then we were starting to see a cannibalization of others’ accounts. That wasn’t fun. That was not how we grew the business and it was something that was taking the fun out of it. You were no longer marketing your company and the good things you do. It was always why you were cheaper than that other guy. That’s not fun.”

Klein says the quickening pace of consolidation at the time left him confident that he could sell to any of the handful of prospects that routinely inquired. He also knew from his three children that they had no interest in running the family business.

“I told my wife that the opportunity to sell would be there, but that I would only sell with blessings of my father, who was still a minority shareholder, and the rest of my family. I also said I won’t sell until I was not having fun anymore – and it got to a point of not having fun. The business itself was just not fun for me anymore,” he says.

Klein spent more than a year talking to potential buyers before settling on Kansas City-based Inergy, which had just become a publicly owned master limited partnership in 2001.

“I felt most comfortable with them in their approach and in their ability to take care of my employees. It was extremely important to me that whoever we sold to would take just as good care of them as we had. That was the more overriding factor in the whole process,” Klein says.

With the decision made to end the family legacy and the labored details of the deal finally complete, the 46-year-old Klein still had his toughest task ahead – to tell his 33 employees.

“I went to the individual offices to tell them. That was a tough thing to do. We had some people cry, and I can’t say that I didn’t cry, too,” he admits.

“I would tell anyone that if you are not ready for it, don’t do it. You have to be emotionally prepared for it. I was really ready because I felt comfortable with the decision of who we were selling the business to.”

Any regrets? Klein, who now works in the natural gas business that he started while at Hancock, says no – although he does miss his people. He has stayed in touch as a consultant to Inergy and as a board member of the National Propane Gas Association, although those arrangements expire this month.

“My experience was positive. Everything they told me they would do, they did. You can’t ask for more than that. Like my grandfather used to say, ‘It ain’t a good deal unless it’s a good deal for everybody.’ “

Even though his sale went smoothly, Klein advises marketers to find a trustworthy, experienced attorney and accountant to represent you at the negotiating table and to prepare for a draining experience.

“I think most people have to go through the process to really understand it. There were countless times that we had reams of legal stuff to go through – lots of back and forth. I don’t think anybody is really prepared for the amount of time and the toll it takes on you going through it.”

He is convinced that his company’s meticulous record keeping and documentation back into the 1950s eased the transaction and added value to the final sale.

“The time and effort you put into your business going into that sale will help your business and sales process as a whole. That comes from having good people working for you over the years doing things the right way,” Klein says.

“Run a clean, orderly ship and when it comes time to sell that boat you are going to get paid for it. It’s so important in valuing your business that I can’t stress it enough.”

Suburban Gas

MONTGOMERY, ALA.

The nation was still clawing its way out of the Depression in 1937 when four men ponied up $25 apiece for the first month’s rent of the back room of a Montgomery, Ala., grocery store for a new business filling the 20-pound propane cylinders that local folks used for cooking.

Ralph Rooney

A decade later, the unquenchable post-World War II demand for tanks and appliances throughout central Alabama cemented the venture and Suburban Gas would grow to become one of the most recognized propane marketers in the heart of Dixie.

Ralph Rooney was studying engineering at Vanderbilt University when he decided he wanted a career in the business his father started. After graduating in 1961, he began full time with the company he had worked at since his freshman year in high school.

In 1978 the company split and Rooney got his first taste of ownership. Suburban grew steadily, acquiring several local independents and adding software, finance and equipment companies to its gas sales.

By the time the company was sold to Baltimore-based Thompson Gas & Electric in 2006, Suburban was serving 12,000 customers from six retail stores. After 45 years, Rooney was ready for retirement.

“I was 68 at the time and in good health,” he recalls. “It just seemed to be an appropriate time.”

The former National Propane Gas Association president had two sons in the business, but they decided they didn’t want the time commitments that accompany management.

“We had talked about selling for a couple of years. Finally, we just connected with right folks who seemed to fit what we were thinking. For me, it was a retirement decision.”

The Thompson deal ended more than two years of discussions with about 10 suitors. Rooney says his phone started ringing regularly once word got out that he was considering ending his career, making it unnecessary to consider using a broker.

“From the logistics of pure selling, it was about what I expected,” Rooney says, adding that it took the better part of a year to complete the deal. “There were tough moments. There are always moments when you want more than they offer; that’s just as natural as the sun coming up. When you are going through it, you are not completely sure that you are going to do it.”

Trying to negotiate, process numbers, research assets and complete all the detail work required in a sale made it particularly hard to conduct business as usual, Rooney says.

“The toughest part was the emotional part inside you,” he says matter-of-factly. “It was tough. It was wrenching. We had one secretary who had been with us 50 years who all of a sudden wasn’t going to have a job. That wasn’t an easy thing to do.

“Your emotions get so tied up in it. It troubles you a bit. You get through it; you have to get through it. The hardest thing is the emotions of selling a business that our fathers had started and that our employees had been a part of for so long.”

Lowe Bros. & Dad, Inc.

CHARLOTTE, MICH.

Even with the family name on the front door and a four-generation legacy at stake, there are times when good business trumps sentiment and deals get done.

David Lowe

David Lowe and his brother ran Lowe Bros. & Dad, Inc. since their father died in 1988. David ran the daily operations.

The 40-year-old company, located in the heart of Michigan south of Lansing, already had morphed several times since its creation by their father, uncles and grandfather in the late 1940s. The retailer sold its assets to Petrolane in the 1960s but stayed in business as a distributor for the propane giant. In the 1970s it began leasing tractors to Petrolane to deliver fuel to its branches in the tri-state area. The Lowes repurchased their assets in 1995 and resumed as an independent marketer.

With area homes converting from fuel oil to propane, Lowe shifted the company focus away from forklifts to residential accounts. The strategy worked. The company grew to 2.25 million gallons with more than 90 percent of sales to 2,300 customers going for lucrative residential consumption.

Equally important, Lowe was upgrading aspects of the business that would add value to prospective buyers. Average drop size increased, most were keep-full accounts and the company owned an envious 100 percent of its customer tanks.

“We just kept honing operations to put us in the best position to sell, using industry benchmarks,” Lowe says.

In February 1998, Lowe brought industry consultant Dwain Willingham of Kansas City-based Propane Resources to broker the sale of the 50-year-old family business. He says it wasn’t a tough decision.

“It was a good business, but I was never married to it. It was always an instrument to get the kids through college,” he says.

“At the time, we were looking at substantial increases in costs for CETP training, healthcare costs and tank prices. Government intervention was rising. Plus we needed a new computer system and bobtails. I figured I could do better investing in the stock market.”

Four months later, the offer from Star Gas Partners was accepted over nine others. His work polishing company operations paid off with a sale price of just under eight times the company cash flow – almost 50 percent more than what the 46-year-old Lowe was offered just two years earlier.

Both Willingham and Star Gas President Joseph Cavanaugh told him that he had done an exceptional job detaching his emotions from the transaction. He considers that a compliment.

“You have to separate yourself. You have to discipline yourself to go away from those feelings. It’s just business,” says Lowe, who owns and manages a baseball and softball training facility called Frozen Ropes Training Center in Lansing, Mich.

He continues to serve on the boards of the Michigan Propane Gas Association and Michigan PERC and as a facilitator for the NPGA’s Marketer Management Forum.

Permagas Inc.

LAKE STEVENS, WASH.

A little “soul searching” helped Joe Sternola decide to sell the assets of Permagas Inc., his Lake Stevens, Wash.-based propane business, in January 2006.

Joe Sternola

“You have to sometimes grab a hold of where you are in this world, evaluate where you’re going and how you’re going to get there and decide what you’re going to do,” Sternola says.

The 71-year-old watched a company that he started with “a pickup truck and $500” grow successfully over 35 years of his leadership. At the time of its asset sale to Liberty Propane, Permagas was selling about 5 million gallons of propane annually to about 2,000 customers throughout areas in Washington, Idaho and Alaska.

“My decision was based on the belief that I had contributed most of what I could for the welfare of the company, and the company had done the same for my welfare,” Sternola says. “After it grows to the point where one person gets to be nearly irrelevant, it’s time to reevaluate.”

With 20 employees under Sternola, Permagas serviced a wide range of customers, mostly retail but some wholesale, and a wide range of tank sizes – from five gallons to 30,000 gallons.

“I have a management style where I train and assign responsibility, then get out of the way,” Sternola says. “The employees took ownership of their job and provide excellent customer care, so they didn’t need to get my permission for their decisions. They went out there and got the job done – and they still do.”

Sternola recalls numerous inquiries from national companies wanting to buy Permagas, but he never felt comfortable with their visions for Permagas’ future, its employees and customers. Then Liberty Propane came along and met Sternola’s standards.

“What made Liberty different is they reflected (and financially recognized) all the values of the business,” says Sternola, stressing the dedication of his employees and a manager prepared to assume leadership, the company’s market position and resources for growth, its quality customers and its additional revenue sources, including a rail terminal.

“I thought the sale would do more for me, for Permagas and for the employees if I stepped aside and let them continue to grow with the additional resources provided by Liberty Propane,” Sternola adds. “It was the right decision for them as well as for me.”

Sternola now has a partnership interest in Liberty Propane, so he remains involved as an owner “once removed.” He also continues to be the representative of the NPGA to the Uniform Plumbing Code Committee and the LP Gas Association of Canada to the NFPA 58 Committee. And if the right opportunity came along, he would consider buying another propane company.

Moulton Gas Service Inc.

WAPAKONETA, OHIO

Van Wright’s career in the propane business began when he met Tracey Stroh, his future wife, at Bowling Green State University in Bowling Green, Ohio. Kermit Stroh, Tracey’s father, founded Moulton Gas Service Inc. in 1958 with his father, Elmer, and later introduced Wright into the family business.

Tracey and Van Wright

Wright spent 25 years with the company, his last 11 as chief operating officer, while Tracey worked in marketing and office administration for Moulton.

“Our business was family driven and personally driven,” says Van Wright, 50. “We had titles, but much of what we did was let the 90 employees take care of the customers.”

Based in the west central part of Ohio, Moulton serviced a heavy load of residential heating accounts during the Wright tenure. It delivered 20 million gallons of propane annually to more than 20,000 customers.

“Every owner and operator examines the trends and future of their business,” Wright says. “If it’s a family business, you look at succession. Tracey and I have two wonderful sons who are very successful. They had different career ideas, and they’re executing those careers.”

Just as the marketer made decisions to expand from its early days, it made the business decision to sell. Although many companies expressed an interest in buying Moulton, Inergy succeeded most at presenting a long-term plan, evaluating the business and agreeing to keep the name intact. The transaction was made in December 2004.

“I don’t know anybody who says it’s easy to part with great customers and greater employees and long-term friends in the industry. That’s very difficult,” Wright says. “We felt our business was a leader-type of business. It’s tough to drop out of that group and move onto other interests.”

Wright now works in external relations at Bowling Green State University, but he’ll stop by Moulton from time to time to say hello and recall his days in propane – when he helped pass along the same knowledge he learned from family.

“For me, the toughest thing is not having those 90 people who look at you for leadership, and I wasn’t there that next day. That’s hard,” Wright says.

“Most of those people I hired or helped hire or helped train, and that’s difficult,” he adds. “But because they were well prepared, they can carry on.”

Ridge Fuel Co.

AVON PARK, FLA.

Franklin and Judy Welch tried for more than five years to sell the family business that featured one of the nicest plants, a desirable location in the middle of the state, plenty of storage and a strong reputation of service built through the years.

Franklin and Judy Welch

“There were lots of ups and downs with this,” Judy says. “It was very much an emotional thing with me and the family because it was a family business. It was kind of like riding a roller coaster from the get go. You get all excited to get some contacts and you do all of this due diligence, and nothing happens.”

John Franklin Welch Sr. and his brother, Ed Welch, started Ridge Fuel Co. in the 1935. When they retired in 1957, Franklin Sr.’s two sons, Franklin Jr. and Glenn, took control of the business along with two of their sisters.

The independent marketer serviced 2,000 customers, most of whom used propane for cooking and heating water. Ridge Fuel’s average customer stored propane in a 100-gallon tank.

“Everybody has their own type of business,” Judy says. “We were unique because we were a small business in an area for a long period of time.”

But as the years past, Franklin and Judy realized that something had to be done with the company.

“We were all getting up in years,” says Franklin, 73. “I had two sisters in their 80s working in the office. It was getting to where we couldn’t do the work anymore, and we didn’t have any family members who could take care of it.”

The retailer began the process of selling , but encountered more difficulty than expected. Positive talks turned up empty, and the tragedy of Sept. 11 only worsened the futility.

“Nobody was interested in buying anything at that point,” recalls Judy, 67.

Having experience in the real estate business, Judy knew the family needed help. That came from key people, including Daniel Dixon of Propane Resources and Joe Day, an attorney with knowledge of selling gas companies.

In December 2003, United Propane Gas of Paducah, Ky., bought Ridge Fuel Co. The Ridge staff of eight stayed on board for another year to help with the transition.

“In hindsight we should have started five years before then,” Judy says.

“We waited too long. Years ago, our gallons were up tremendously. People were using a lot more, and we had more commercial accounts. All that was dwindling away. You get ready to sell, and you’re not at your prime.”

Jenkins Gas Co.

POLLOCKSVILLE, N.C.

Bob Mattocks still has a picture of his late father-in-law in his office. John D. Jenkins has been deceased for 25 years, but the impression he left on Mattocks has been everlasting.

Bob Mattocks

“He was my father-in-law, my best friend and my business partner,” says Mattocks, 70. “We had a wonderful relationship.”

Mattocks went to work for his father-in-law’s North Carolina business, Jenkins Gas Co., in 1963. Mattocks remembers the first few years being tough financially, before the company sold half of its interest to Tropigas International Corp. to improve its capital. Jenkins Gas Co. grew substantially over the next two decades, with Mattocks becoming president in 1974. Jenkins Gas Co. bought back its interest from Tropigas in 1988 to become an independent, family-owned company again.

And it thrived. When Mattocks first started in the industry, the company was selling 120,000 gallons of propane a year – much of which was used for tobacco drying. That total grew to 40 million gallons by the time Jenkins sold to Liberty Propane in 2005.

“What was unique about us was, as large as we were, we were concentrated in pretty much the eastern half of North Carolina,” Mattocks says. “We had a lot of gallons concentrated in one area.”

His son, John Robert Mattocks, had ascended into the role of company president, succeeding the late Sam Rawls. As chairman of the board, Bob Mattocks was ready to slow his role. He felt the timing was right to make a move with the company, which had 200 employees at 20 branches.

“I’ve seen companies get along well in the first or second generation, but in the third generation things deteriorate and people don’t get along,” recalls Mattocks of his reasoning.

He also wanted to release his two daughters and his grandchildren from the company and allow them to receive proceeds from a sale.

Mattocks had John Robert make the final decision, and the son agreed. John Robert kept six of Jenkins’ branches, giving him equity and future growth of those companies.

“We just looked at all of the positives and potential negatives and prayed about it,” Mattocks says of his family and key company officials. “My wife is a wonderful person with a lot of insight, and we talked to our children. We all agreed.”

Liberty wanted to buy a large company that would move it closer to going public, Mattocks says, and Jenkins provided that.

John Robert is now a regional vice president for Liberty overseeing the southeastern United States, and Mattocks remains involved in the industry by serving on Liberty’s national advisory board and serving as chairman of the Jenkins board.

“In retrospect, if I had to do it over again I probably would do it quicker,” Mattocks says of his decision. “I haven’t let go.”

Econo-Gas Supply Inc.

SPRING, TEXAS

James Havens spent nearly 30 years in the family’s propane business that his father, Joe D. Havens, started in 1967. James Havens learned from a philosophy based on trust.

“People would always wonder how an independent was able to compete against the major oil companies,” Havens recalls. “We did it out of service and commitment.

“Propane is a relationship business – you build a relationship with the customer, and then you do what you say you’re going to do. For 28 years, we fulfilled every contract and honored every price. That was our bond.”

Econo-Gas Supply Inc. was the wholesale arm of Enterprise Products Co., which Joe D. Havens started with business partner Dan Duncan. Gas-Tec was its retail segment, which was selling 10.5 million gallons annually from 22 locations.

James Havens worked for his father in a number of capacities – bobtail driver, serviceman and manager to traveling the Dixie Pipeline as an employee on the wholesale side.

“I had worked for my dad at one time or another for 28 years,” James Havens recalls. “A lot of friends and a lot of relationships.”

When Joe D. Havens semi-retired in 1990, Econo-Gas Supply located to Spring, Texas, where James Havens took control. The family sold its retail segment to several companies in 1993, with all 57 employees remaining on board with the new companies.

The deal allowed the Havens boys to grow a golf management business in propane’s off-season.

“Econo-Gas Supply was still going strong as a wholesaler,” selling 35 million gallons annually, primarily along the Dixie Pipeline for home heating, James Havens says. “I had plenty of spare time, so we got into the golf side. From 1994 on, we were in both businesses. From a cash-flow standpoint, the two businesses made sense. It kept me busy 12 months a year.”

James Havens’ decision to sell the company was based on estate-planning issues and the family’s future in other businesses. In April 2006, NGL Supply of Tulsa, Okla., bought Econo-Gas Supply.

“My father, my two brothers and myself have our extended families, and from a tax standpoint you can only pass on so much to your heirs. If not, at death Mr. Government gets all the money,” James Havens says.

Econo-Gas Supply’s five employees remained with NGL Supply after the sale, and James Havens involved himself further in his golf business. H&T Golf Partners helps people build or renovate golf courses.

“The propane business is a big family, so that was hard to leave,” James Havens says. “From a relationship standpoint, it’s hard walking away from something I’d done for 28 years. I’ve watched customers’ kids grow up, and some of them have kids now.”

Havens, 50, admits that propane “is in my blood,” but he doesn’t plan a return to the industry – unless, of course, the right opportunity came along.