Gene Bissell’s last day as the veteran leader of AmeriGas Propane was March 2. He had been the president and CEO of the nation’s largest propane retail operation since 2000. His career at AmeriGas, however, spanned much longer – more than 20 years.
He went to work for UGI Corp., AmeriGas’ parent company, in 1981 as a management trainee. He worked as a financial analyst, district manager for an industrial gases store and in corporate development. When his division was sold, he left the company for about seven years before returning in 1995 and climbing the corporate ladder.
Bissell closed his career in 2011 by winning NPGA’s Distinguished Service Award – he served as NPGA chairman from 2002-03 – and leading AmeriGas through its purchase of Heritage Propane in a $2.9-billion deal, which was first announced last fall. AmeriGas Propane now serves more than 2 million customers in all 50 states from more than 1,200 locations.
The 58-year-old Bissell, always easygoing and polite to others, is enjoying retirement, glad to spend more time with his wife, Joann, and daughter, Jennie, and staying surprisingly busy. The Minnesota native and Philadelphia-area resident took some time recently to answer questions from LP Gas Editor in Chief Brian Richesson about AmeriGas’ purchase of Heritage Propane and the state of the propane industry.
LP Gas: AmeriGas dominated industry headlines in recent months with its acquisition of Heritage Propane and your retirement. Have you had a chance to catch your breath and reflect on everything?
Bissell: Yes, I have. There was certainly a whirlwind of activity from the time we announced the deal until I retired. I am proud of what the AmeriGas team achieved during my tenure as CEO. We completed more than 70 acquisitions. EBITDA grew from $208 million to $335 million, and net income per unit grew by an average of 9 percent per year. AmeriGas’ stock price grew from $17 per unit to $44. I am very pleased to end my service as CEO of AmeriGas with the acquisition of Heritage, which I view as a real capstone to my career and a compelling strategic move for AmeriGas. I want to emphasize that since I have retired, I can’t speak for AmeriGas; I can only share my personal perspective and point of view.
LP Gas: Let’s talk about the acquisition. Why did AmeriGas target Heritage Propane, why now and how do you feel it will impact AmeriGas and its customers in the years ahead?
Bissell: We were interested in Heritage because of the quality of the company and the management. Heritage has a reputation for being customer oriented, focused on safety and for having strong, committed local managers – all things that we felt would be a good fit with AmeriGas and lead to a smooth integration.
Another advantage of the Heritage deal is that it is easier to buy a division of an MLP than to merge two MLPs. For example, in most cases with a merger of two MLPs, approval of both sets of shareholders would have been required – which would have slowed down the process.
Finally there was a good overlap between the locations served by the two companies. More than half of the locations were in overlapping areas. In those areas, AmeriGas will be able to reduce operating expenses – but will also create larger locations better equipped to take care of customers.
For AmeriGas, this deal extended the company’s footprint – which is valuable in serving National Account and Grill Cylinder Exchange customers. The merger of the two companies also added to AmeriGas’ infrastructure – with more terminals, more storage and more railcars and transports.
For customers, the deal gave the combined business better geographic coverage and greater supply reliability.
LP Gas: There has been talk, perhaps criticism, on the amount AmeriGas paid for Heritage. I’d like to know your thoughts on the specifics of the deal. Have you heard the same criticism, and, if so, how do you respond to it?
Actually, the only place I heard any criticism of the price was in the article in your magazine – based on an interview with just one of the many Wall Street analysts that follow our industry. The only thing that surprised me about the article is that no one called AmeriGas or Heritage to ask our opinion.
We did spend quite a bit of time presenting the benefits of the deal to the investment community. The key to the valuation was our assumption about the amount of synergies we could achieve and our successful past track record of integrating large acquisitions, like Petrolane, Calgas and Columbia.
We obviously believed that the price was a fair representation of the value of Heritage, balanced by the challenges associated with integrating the two companies.
AmeriGas showed its confidence in the deal by recently announcing a 5 percent increase in the distribution – on top of the 3 percent increase announced earlier. As an investor, I was thrilled with the combined 8 percent increase in the distribution.
It seems like the market has responded favorably to the deal. After the debt offering associated with the deal was announced, AmeriGas debt was actually upgraded by Moody’s, and as an outsider the recent equity offering appears to have been well received by investors. That said, as you would expect, the investment community is going to want to see the company deliver on the synergies we presented to them in justifying the deal.
LP Gas: Overall, from your experiences, how has the industry responded to the acquisition?
Bissell: The people I talked to all seemed to recognize the challenge associated with integrating two companies of this size and the need to address cultural differences, but they also seemed to see that this is a compelling strategic move for AmeriGas.
LP Gas: Former Suburban Propane CEO Mark Alexander once said the industry needs consolidation among its majors – from five companies to two – for efficiencies. What is your view on consolidation within the propane industry? Are these types of acquisitions among majors healthy for the industry, and should we expect more of them?
Bissell: I would agree that mergers large or small allow companies to realize significant efficiencies – and in a growth-challenged industry one of the best ways to preserve profitability is to improve efficiency. The key is that the acquisition price has to be based on realistic assumptions. Secondly, companies need to have a good integration plan and excellent execution to realize the potential benefits of integrating two companies. The other way to improve efficiency is to invest in technology to reduce operating expenses. I tend to think that both large and small marketers should be looking for opportunities to reduce expenses through consolidation or through new technology.
Considering the challenges the propane industry is facing, I don’t think most marketers can afford to stand still. They need to reduce their operating expenses through consolidation or new technology, find ways to grow the industry or face declining profits. They would be better off selling than standing still.
LP Gas: AmeriGas is the largest U.S. propane distributor, and it just got larger. How does it maintain that close connection to the customer?
Bissell: A strong commitment to customer service is a part of the culture of both Heritage and AmeriGas. There are a few keys to maintaining it. First, strong local management empowered to make the decisions necessary to provide great service to customers. Secondly, fully leveraging the size and scale of AmeriGas to provide unique benefits to customers. For example, given AmeriGas’ geographic coverage and resources, no company can do a better job of serving national accounts.
Customer surveys are a great way to make sure that customers continue to be pleased with AmeriGas service. The last survey I saw before I retired showed that about 93 percent of customers were satisfied or very satisfied with AmeriGas service. Based on surveys conducted of the competition, these are strong results. I am sure AmeriGas will continue to use surveys as a tool to keep the focus on customers.
LP Gas: In what areas have you seen the industry change most in your 20-plus years – for better or worse?
Bissell: The biggest change for the better has been the way the industry now works together through NPGA and PERC to promote safety and to improve the prospects for industry growth. As a result, I think the propane industry is safer, and we do a better job of promoting propane and fighting for a level playing field in Washington and at the state level.
NPGA is much stronger today than it was 16 years ago – which is a credit to Rick Roldan and his talented team, and also to all of the industry volunteers who are so willing to contribute their time. During my years on the executive committee, I was so impressed with people like Sam McTier, Mike Gorham, Charlie Revere, Doug Auxier and Keith McMahan. They are so knowledgeable about our industry, fully committed to the concept of working together to build a better future and so generous with their time.
The same is true for PERC. It did not even exist 16 years ago, but it has made a growing contribution to our industry. The credit belongs to Roy Willis and his able staff, and to council leadership over the years – people like Daryl McClendon, Walter Cressman, Paul Grady, David Lugar and now Joe Armentano, just to mention a few of them. What I see today in both organizations is a lack of bickering and politics and a common desire from some very talented volunteers and staff people to do what is best for our industry. I also see strong support from all of the MLPs, which was not always the case.
What has changed for the worse is the industry’s growth rate. When I rejoined AmeriGas in 1995, the industry was growing at about 2 percent a year. Propane could beat electricity in almost every application, and we were getting more than our share of a growing housing market. Now the industry is shrinking, for all of the reasons you have documented in your articles – the decline in manufactured homes, the collapse of the housing market, the weak economy and the rise in the cost of propane relative to other fuels. It is critical to the future of the propane industry that there continues to be strong support for NPGA and PERC and strong staff and volunteer leadership.
I [also] am concerned about the forklift market segment. This is a large segment for our industry, and in recent years there have been efforts to pass legislation or regulations to reduce the use of propane forklifts in California. Forklift companies have raised issues concerning fuel quality, and there is a competitive threat from electric forklifts. I think the industry needs to invest in protecting this important market segment.
LP Gas: What major factors are in play in the industry today to which marketers must adjust for the sake of their businesses?
Bissell: The major factors are high propane prices, customer conservation and a weak housing market leading to weak demand and also increased government involvement.
The industry needs to work together through NPGA and PERC and as individual companies to grow our share of the energy market. We need to work together when it comes to favorable government policy and to develop new applications. Developing new applications is of no value, however, unless marketers embrace them and do the missionary work to get the new applications out in the marketplace.
We need to have a strong and consistent voice in Washington and in state capitals to advocate for our interests and the interests of our customers and employees. The best example right now is to make sure that propane gets the same government policy benefits that are given to natural gas. I believe the use of both fuels should be encouraged through government energy policy.
Given the low growth rate in the industry, I believe all participants in the industry – the propane and equipment suppliers, the distributors and the marketers – have to look for ways to take cost out of the supply chain, so that we can all be competitive and continue to grow our profitability.
LP Gas: Will all of the shale drilling help or hamper the propane industry?
Bissell: It seems clear to me that all of the additional propane coming from shale drilling is going to be a benefit for our industry. At a minimum, it will ensure that there is plenty of propane available to support growth in the industry as the housing market improves and we get traction with some of the new applications – like propane lawn mowers – or the over-the-road market.
A second benefit will be that propane from shale deposits in western Pennsylvania and New York will be closer to key East Coast consumer markets. That will make that part of the country less dependent on imports and lower the cost to get propane to customers. I believe there is also potential for the increased supply of propane to lower the cost of propane relative to electricity and heating oil.
LP Gas: What can you tell us about the state of AmeriGas management moving forward, including the promotion of Jerry Sheridan, your successor, and the addition of Paul Grady as vice president and COO?
Bissell: I really believe Jerry Sheridan and Paul Grady are a “dream team” that will provide great leadership to the new AmeriGas. I worked with Jerry for six years and recommended him as my replacement based on his high ethical standards, business acumen and strategic insight. I cannot imagine anyone who would be a better partner for Jerry than Paul Grady. As you probably know, Paul was with AmeriGas for many years, including four years as COO during my tenure as president. I don’t know anyone who is better at execution or who is a better coach and mentor for the AmeriGas field managers.
Fortunately the list of strong leaders does not stop with Jerry and Paul. John Iannarelli has already proven to be a great CFO, based on having had a lot of field leadership experience in addition to his experience in finance and accounting. Most of your readers know David Lugar, who does an outstanding job as VP of supply and logistics, in addition to his ongoing involvement in PERC and NPGA. Andy Peyton is a talented and creative VP of sales and marketing. Paul Grady leads a team of six field generals, the region vice presidents – three from Heritage and three from AmeriGas – that will ensure that AmeriGas continues to focus on being responsive to customers, achieving world class safety performance and providing a great return to unit holders. It is a very strong team.
LP Gas: What does Gene Bissell do now? What are your plans personally and professionally?
Bissell: I am glad to have more time for friends and family, for travel and the freedom to set my own schedule and priorities. In addition, I am active in several non-profit groups, including serving on the board of trustees of Kalamazoo College and working with a group called CARIE, which is a senior citizen advocacy group, and with some local theaters. I also want to stay active in NPGA, to the extent that I am able to add value. As a winner of the Distinguished Service Award, I have lifetime membership on the NPGA board of directors. I have grown to love the propane industry, and we have made a lot of friends through my involvement in NPGA. My wife actually says I have become a propane nerd, partly because I have a collection of pictures taken during our travels of propane being used all over the world – from Bora Bora in the Tahitian Islands to Chiang Mai in Thailand. So I hope I can continue to be involved in the industry in some way.