How the ‘One Big Beautiful Bill’ is powering propane M&A

As Americans geared up to celebrate the 249th birthday of the United States, the halls of Congress were far from quiet.

At approximately 4:52 a.m. on July 3, after months of debate and deal-making, Congress passed the One Big Beautiful Bill Act (OBBBA). This sweeping piece of legislation spans numerous sectors, but for the propane industry, its implications are particularly significant, especially in the realm of mergers and acquisitions (M&A) and investor economics.

Given that the propane sector is relatively capital-intensive, many of the bill’s provisions are widely seen as positive, increasing propane’s attractiveness to investors that may be considering the industry. These changes are expected to enhance the sector’s appeal to investors, potentially attracting new capital and helping to sustain – or even elevate – current EBITDA multiples.

A few of the key items for this outlook are:

⦁ Restoration of 100 percent bonus depreciation

The OBBBA reinstates full first-year bonus depreciation for qualifying assets placed in service after Jan. 19, 2025. This move reverses the phasedown under the Tax Cuts and Jobs Act and allows companies to once again deduct 100 percent of asset costs in year one, improving cash flow and return on investment for acquisitions in the capital-heavy propane space.

⦁ Enhanced interest deductibility

By shifting the interest expense limitation calculation from EBIT back to EBITDA under Section 163(j), businesses can now deduct more interest. This makes leveraged buyouts more feasible and potentially more attractive.

⦁ Increased Section 179 expensing cap

The OBBBA doubles the Section 179 expensing limit from $1.25 million to $2.5 million, with phaseouts beginning at $4 million. This expansion lets propane businesses immediately expense more of their qualifying property, further incentivizing investment in equipment and infrastructure.

⦁ Expanded qualified small business stock (QSBS) benefits

Improvements to QSBS tax treatment enhance the appeal for investors, especially those looking to back small- to mid-sized propane operators.

⦁ Implications for deal structuring

The reinstatement of full bonus depreciation introduces complexities in purchase price allocations during M&A transactions. Buyers may prefer allocations that maximize depreciable assets to take advantage of immediate deductions, while sellers might aim to minimize depreciation recapture. With the rise in the price of steel, we have seen a win-win scenario where dollars allocated above the original cost basis go to long-term capital gains for sellers, and buyers get to allocate more than can be included in the full bonus depreciation.

We have asked other individuals from various companies investing in the propane industry to weigh in.

“Obviously, the ability to get 100 percent depreciation on qualified assets will motivate buyers to give a premium to companies that have a large percentage of assets. The reduction or elimination of green energy tax credits should filter down to state energy policies and give comfort to investors on the long-term viability of propane. The emphasis on fossil fuels should increase supply of domestic propane, bringing commodity costs down and increasing propane retail margins, making the industry more attractive.

“What’s not in the bill is the effect of tariffs and how they will affect the timing of the Fed’s decision to lower interest rates. Lower or higher interest rates will be the No. 1 factor as it relates to multiples.”

– Joe Armentano, Paraco Gas

“We expect propane M&A activity to remain strong due to sustained tailwinds provided via the restored bonus depreciation provision, as well as several other aspects of the bill that treat traditional energy sources more equitably. This more favorable outlook may assuage some of the concerns over the political landscape that have prompted sellers into the market in recent years, but it should also strengthen valuations to the extent those same risk factors have lessened for buyers.”

– Anthony Silecchia, Star Group

“The One Big Beautiful Bill is a meaningful tailwind for propane M&A. The restoration of 100 percent bonus depreciation and a clear policy shift in favor of traditional fuels improve after-tax returns and give buyers more confidence in long-term cash flows. With green energy incentives rolled back, we’re seeing capital rotate back into infrastructure-rich sectors like propane. All in, it’s a positive development for both the industry and its investors.”

– Matt Raimondi, Silvermine Growth Partners

“The passage of the One Big Beautiful Bill is not expected to fundamentally change our approach to acquisitions within the propane sector. Our confidence in this industry remains unwavering regardless of this bill, and we intend to maintain our disciplined strategy of acquiring businesses into 2025 and beyond.

“Nevertheless, the bill introduces enhanced depreciation schedules and new tax incentives that will serve to further improve the landscape for investment. These provisions are poised to lower the overall cost of capital for new projects and acquisitions, allowing us to allocate more resources toward expansion and innovation. Reduced investment costs will naturally translate into increased capacity for growth, job creation and the potential for higher wages within our organization.

“Ultimately, these legislative changes reinforce our longstanding commitment to reinvesting in the communities where we operate. By taking advantage of the bill’s incentives, we can amplify the positive impact of our presence – supporting local economies, fostering sustainable development and driving better returns for all stakeholders. Our strategy continues to focus on responsible expansion and community partnership, now with even greater opportunities to deliver value thanks to the supportive measures outlined in the One Big Beautiful Bill.”

– Sean Daugherty, Reliable Energy Partners

With the anticipated economic growth and increased private equity activity in 2025, the propane industry is poised for a surge in M&A transactions. The demographic trend of retiring business owners lacking clear succession plans further contributes to the potential for increased consolidation in the sector.

In summary, the OBBBA’s provisions on bonus depreciation, interest deductibility and expensing limits are set to create a more favorable environment for M&A activity in the propane industry, encouraging investment and potentially leading to increased consolidation and business growth within the sector.

Barrett Conway is managing director of Cetane Associates. Contact him at bconway@cetane.com or 860-592-0089.

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