Acquisitions aplenty for big players

October 1, 2007 By    

Trying to sell your business? There are plenty of buyers out there. Does it matter where you are located? It usually does if you are hoping to sell to one of the top five national players (MLPs). If you are not located in the “hotspot” areas, you may be searching for a regional or other independent buyer – both inside and outside of these “hotspot” areas.

Daniel Dixon Propane Resources
Daniel Dixon Propane Resources

The MLPs include AmeriGas, Ferrellgas, Heritage (Energy Transfer), Suburban and Inergy. Four of the five have been quite active dating back to 2003, with more than 300 locations acquired between them. The other, Suburban, has acquired only one business – but it was a 100 million gallon acquisition in 2004.

In addition to the MLPs, there are several other national, regional and independent companies searching for and making acquisitions of propane companies all over the country. We have seen some of these companies be very active in making offers on companies we have represented. On few occasions a seller should expect to receive only one offer in this acquisition environment.

Near one of their current locations

While “apple-to-apple” comparisons are difficult, especially with some companies mentioning locations acquired and others mentioning companies, one can clearly see the big players are staying active on the acquisition trail. Inergy and Heritage remain the most active, but all say they always are searching for acquisitions that meet their key criteria and can be immediately accretive to their EBITDA.

What are those key criteria? Does size really matter? The map above shows the multi-state locations of the top five retailers. Notice the open space in the middle of the country? Some acquisitions personnel call it the “fly over zone.” It is the area where margins are traditionally lower, and there are many customer-owned tanks in the field, among other acquisition deterrents.

The East and West coasts always are looked on with fervor from buyers, mainly due to the larger-than-normal population growth and higher margins. But do not discount the attractive areas of the Ohio Valley and the Rocky Mountains where everyone is interested in building a footprint. As you can see, the Southeast, Ohio Valley and Mid-Atlantic/Northeast areas are the most densely populated areas with the MLP locations. Some parts of the Midwest also are populated heavily. Why is the West so sparse? If you looked at a population map, it would look much like this map – most of the people live east of the Mississippi until you get to California. Colorado, however, is growing fast.

Key Criteria
Key Criteria

Buyers always are looking for geographical diversity. They strive to build a good presence without having too much of their total concentration in one area. Geographic diversity can help in the case of poor winters. That is likely one reason Heritage acquired V-1 Propane out West a few years ago after acquiring US Propane in the Southeast. The same goes for Inergy when it started building in the Southeast and Ohio Valley, then acquired large companies in the Northeast and Texas. AmeriGas, Ferrellgas and Suburban already had a national footprint.

Why do the large companies make so many acquisitions? That is their growth strategy. Most independents grow internally through adding residential and commercial customers throughout the year – hopefully netting out to a gain. Large companies, as a whole, tend to lose (from a net customer standpoint) customers year to year and therefore have to make acquisitions to build their customer base and annual volume. Following the top 50, for example, you can see the volume declines for those who have not been as active on the acquisition front. Yes, heating degree days and customer conservation with the high product prices play a big part in the volume decline as well.

So, if you’re looking to sell, remember the trifecta: geographic location, profitability and operational/marketing practices set the stage for the interest buyers will have in your business. If you are located in the middle of the country, it may be harder to find a multi-state buyer with significant interest than if you operated your business on either coast. Buyers tend to follow areas with high growth, high company tank ownership and high margins. You can’t blame them. Wouldn’t we all do the same?

But, don’t worry – if your business is good, there will be companies interested (MLP and others). We had about 4,000 retail propane companies 20 years ago, have that number today and will have that number 20 years from now.

Daniel Dixon is a financial and business consultant for Propane Resources. Propane Resources provides financial and operational consulting, merger and acquisition services, supply, transportation and marketing communications services for the propane industry. Daniel can be reached at (256) 740-8275 or

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