Q&A with Jerry Sheridan, AmeriGas president and CEO

May 9, 2013 By    

The propane industry witnessed two major acquisitions in 2012, with AmeriGas closing the $2.8 billion Heritage Propane deal in January and Suburban Propane closing the $1.8 billion Inergy deal in August.

Heritage Propane and Inergy were the nation’s third- and fourth-largest retailers, respectively, in gallons sold, so the acquisitions made the three largest MLPs (AmeriGas, Ferrellgas and Suburban Propane, respectively) even more top-heavy compared to the rest of the field.

AmeriGas sells more than 1 billion gallons of propane to 2.3 million customers following its acquisition; Ferrellgas 762 million gallons to about 1 million customers; and Suburban Propane 625 million gallons to 1.2 million customers following its acquisition. The nation’s next largest propane retailer, Growmark, sells more than 400 million gallons less than the third-largest company.

LP Gas Editor in Chief Brian Richesson talked with AmeriGas and Suburban Propane leaders to find out how the integration processes at each company are progressing.

AMERIGAS-HERITAGE PROPANE

Jerry Sheridan was named president and CEO of Valley Forge, Pa.-based AmeriGas in March 2012, following the retirement of Gene Bissell and about two months after the nation’s largest propane retail operation closed on the Heritage Propane deal. He came to AmeriGas in 2005, having held vice president, CFO and COO positions. Here is what he had to say about the merger.

Was the timing of these large-scale acquisitions just coincidence or does it say something more about the state of the propane industry that the largest retailers are consolidating?

Sheridan: The propane industry in general has been under pressure – the decrease in housing starts and high propane prices in recent years have driven customer conservation. Also, in parts of the Southeast, there’s been an increased move toward electricity among builders and homeowners, and space heaters have become more prevalent. As a result, the volume of the entire industry has been under pressure. It’s such a fragmented industry, with over 3,000 competitors. In any particular town, there could be four, five, eight, even 10 competitors. As a result, it’s an industry that is perfect for a roll-up strategy – that’s how all of the big MLPs have been built – so it’s only natural that consolidation will continue. The fact that a couple of big deals got done recently is just a logical extension of that trend.

AmeriGas closed the deal just more than a year ago. Since the acquisition, we have seen references to the “New AmeriGas.” What are the biggest differences within the company?

Sheridan: The “New AmeriGas” means a number of things to all of us here. We didn’t want to approach the combination with Heritage as a “takeover.” Heritage was a respected company that we thought had great people and great approaches to the marketplace that we wanted to preserve. We really sought to enhance AmeriGas. We went to great lengths to select the best managers and employees from both companies.  We also wanted to integrate the best practices of each business to create a new company that is better and stronger than either was before the merger.  Most notably, AmeriGas was strong in safety and distribution, while Heritage had a great entrepreneurial culture. We want the “New AmeriGas” to have all of these characteristics. Beyond integrating  people, culture and operations, we  renewed our focus on customers. We created a new function in the company that we call customer advocacy. It’s led by a highly experienced VP, Kathy Prigmore, who reports directly to me. Kathy is charged with making sure we are evolving to become the most customer-focused organization possible, top to bottom.

What have been the biggest challenges of folding Heritage Propane, the nation’s third-largest propane retail operation, into the largest?

Sheridan: It’s been a massive undertaking, but we knew what we were getting into. Acquisition integration is part of the DNA of AmeriGas. That’s how the company was built. We had to make sure this was a controlled event. We created an integration management office, where 15 teams tracked everything – monitoring a task timeline of accountabilities in critical areas, such as management selection, how stores blended together and harmonization of  employee benefits, as well as policies and procedures throughout the organization. We had 250 store combinations, and, with AmeriGas accustomed to buying smaller companies throughout the country, we turned these into bite-size events, the equivalent of 250 small acquisitions. We’re finishing up this spring with the final blends, since we froze all integration activities for the winter so we could concentrate on customer service during the critical demand cycle.

You took over as president and CEO only a couple of months after the acquisition closed. Could there have been a more exciting, yet complicated, scenario for a new president?

Sheridan: It’s been a lot of fun. I can’t imagine a better business experience for a senior team to go through. I’ve enjoyed the camaraderie of a new senior team that is a great mix of Heritage and AmeriGas. We’re lucky to have Paul Grady as COO, who was instrumental in making sure we maintained the best aspects of both Heritage and AmeriGas.

Were you prepared to handle such a large-scale transition within the company?

Sheridan: We’re a big company now – 8,500 employees, 2 million customers. One thing you hate to do in our industry is a large-scale acquisition right into what is the warmest winter on record, but that’s exactly what happened. The silver lining in all of that is it allowed us to move fast. We just weren’t as busy as we would be in a normal winter. We had a great head start getting things right, and it allowed us to recover quickly from any minor miscalculations, a certain number of which are inevitable in an integration of this magnitude. So a warm winter became a blessing, helping us get to where we are now.

How will the acquisition impact the way AmeriGas services its 2.3 million customers?

Sheridan: Two great things that come with combining large companies is an expanded footprint and, frequently, larger stores. When you have critical mass in stores, you have more drivers; the manager is going to have distribution talent in the store and more customer service agents. If a small district is missing a driver in the winter, it’s a big disruption. But having critical mass now allows you to have flexibility. You always have good coverage in all functions, and both delivery density and customer service are much improved.

Is there a stigma to being too big – a perception that a large company can’t provide the personal touch for customers like the smaller retailers? Is that a concern?

Sheridan: We don’t view it as a stigma. Competitors try to use our size against us, claiming that we’re not a “local” company, even though our presence and employees are in the same community, but ignoring the fact that our size provides customers with some great advantages: certainty of supply, a total commitment to safety, the ability to mobilize resources in the event of unusual needs, like severe weather or natural disaster, and a 24/7 hotline, to name just a few. We’ve had a lot of discussions with legacy AmeriGas and Heritage managers about what it means to be local and our commitment to being part of every community we serve. Wherever we have combined two brands, we’ve reached out to the customer base, highlighting that we are still the same people, just perhaps with a different logo on our uniform. The footprint we have now allows us to have two great national businesses – our cylinder exchange business and our national accounts business. We have 45,000 locations in cylinder exchange and 200 national accounts serving 33,000 locations. We offer the best of being big, serving large-scale customers, while also being a strong local presence in the towns in which we operate.

What percentage of Heritage Propane employees and AmeriGas employees did the company retain?

Sheridan: As it happens, operating management is roughly in proportion to the volume contributed by each business. That’s  60 percent AmeriGas and 40 percent Heritage. We closed the Helena, Montana, headquarters of Heritage, so the back office is largely made up of legacy AmeriGas employees. Overall, if you look at the total population of Heritage, about 80 percent of the pre-acquisition employees of Heritage are still with us, while 85 percent of AmeriGas legacy employees remain on board.

What does a large-scale acquisition like this do to the culture of a company such as AmeriGas? Is there a warming-up period with employees or a sense of excitement right away?

Sheridan: When the deal was announced, it was viewed as a bad day within the Heritage organization. Heritage employees assumed that AmeriGas would swoop in and change the name and pick all AmeriGas employees. There were a few months of discovery by each team. Once it became clear that AmeriGas was truly committed to capturing the best of both cultures, and the best management team members and employees from each company, attitudes changed very quickly. The challenge I felt was from AmeriGas colleagues, wondering why we were selecting Heritage managers for jobs, so it almost went the other way.  We had extensive discussions about what we were doing, and we really gained the trust and confidence of both teams. Once the entire management team was chosen, including field managers, we gathered the group in Dallas for AmeriGas University. It was an opportunity to come together and realize we are all in the same business, we are all good people, and we are all excited about working together as a new company. It was the breakthrough moment where people felt  “this is something big I can invest myself in.”

Suburban Propane acquired Inergy not long after AmeriGas’ acquisition, and now the top three majors are really separating themselves in terms of gallons sold. Gallons aside, what do you feel separates AmeriGas from its competition – the other majors and the smaller, independent retailers?

Sheridan: As far as the majors, we’re all big companies and we’ll always compete vigorously, but no company in the nation can offer a large, national customer a more comprehensive footprint than AmeriGas. Locally, our toughest competitors continue to be the independents. As I alluded to earlier, where our strength lies versus the independents is in our ability to harness resources on behalf of our customers. We have our own supply function out of Houston. If we have weather events and propane is under duress, there are lots of ways to get product to our customers. We also have more drivers and trucks to mobilize when it really gets cold in one part of the country or an emergency occurs. We even have a standby group of employees – called the AmeriGas Airborne – ready to deploy on very short notice. Having those kinds of resources gives our customers a lot of confidence that we’ll be there no matter what. That’s the edge we have on the local side.

Jeff Kaminski, longtime group director of AmeriGas’ acquisitions program, plans to retire in July, and you’ve brought Daniel Dixon from Propane Resources on board to take over. Can you comment on that transition?

Sheridan: I’ve worked very closely with Jeff over the last eight years. He has been associated with many landmark transactions and has been able to source acquisitions consistently over the years. He has been a very well-respected part of the industry. We’re going to miss him. With Daniel, we were delighted to welcome another well-known, high-integrity executive. He will be a great leader for the corporate development function going forward, reporting to Andy Peyton, our vice president of corporate development.

Editor’s Note: The Q&A with Suburban Propane leaders will appear on Monday, May 13.

Brian Richesson

About the Author:

Brian Richesson is the editor in chief of LP Gas Magazine. Contact him at brichesson@northcoastmedia.net or 216-706-3748.

1 Comment on "Q&A with Jerry Sheridan, AmeriGas president and CEO"

Trackback | Comments RSS Feed

  1. Hank Hill says:

    Heritage employees where screwed by ETP and Amerigas to see Sheridan say Amerigas was good on safety shows how diluted he is Heritage was 10 times more safety focused and amerigas threw that out the window the only thing amerigas learned was not to change the names of all offices because that brand was successful where as the Amerigas brand is a negative. A sad sad day for the industry as well as customers who will be burned and hopefully go with smaller operations