Q&A with Suburban Propane leaders

May 13, 2013 By    

Four members of Suburban Propane’s leadership team, led by President and CEO Michael Dunn, participated on a conference call to talk about last year’s acquisition of Inergy’s retail propane operations and provide an update on the integration process. Dunn has been with the Whippany, N.J.-based company since 1997, becoming president in 2005 and CEO in 2009. Michael Stivala, CFO; Mark Wienberg, vice president of operational support and analysis; and Peter Teshima, managing director, also joined in. Here is what they had to say about the merger.

Was the timing of these large-scale acquisitions in 2012 (AmeriGas/Heritage Propane and Suburban Propane/Inergy) just coincidence or does it say something more about the state of the propane industry that the largest retailers are consolidating?

Dunn: The reality is that it is pure coincidence. The industry had a need to consolidate for some time. These two steps in 2012 were very positive to consolidate the industry – at least among the majors.

Why did Suburban feel Inergy would make such a good fit for the company? 

Dunn: Inergy was attractive from a geographical perspective, with a good concentration on the East Coast. It also gave us an opportunity to expand our presence in 11 more states. We were in a few of these states years ago. Since leaving, we have become more sophisticated in our operating model, and today we are much more comfortable getting back into these markets. We also viewed the Inergy team to be safe operators, which I think is an important point in the propane industry that at times gets somewhat overlooked. And we felt their business practices, in general, were sound. Getting to know them over the last 10 to 11 months has confirmed that perception.

Suburban recently completed the first full quarter of operations since acquiring Inergy. What did that quarter reveal about the company following the acquisition, including  areas where it might need to improve?

Stivala: We would categorize the first quarter as having no surprises, inclusive of the Inergy operations. An important step upon closing the deal and heading into the heating season was to put our field leadership team in place to oversee the combined operations, ensure we got our arms around the business from a financial perspective and to begin centralizing certain back-office type functions. Other than some initial benefits of scale, particularly on some of our G&A costs, we didn’t expect to achieve much in the way of synergies in the first quarter. From here, it’s a matter of executing on our well-thought-out integration plans that will ramp up as we exit this year’s heating season.

What have been the biggest challenges of bringing these companies together?

Dunn: The challenges faced to date were mostly anticipated; that is a good thing. We had a lot of time to study them [Inergy], and in turn we gave their folks the opportunity to get to know us well before we closed the transaction. Combining systems and information was probably one of our biggest challenges, especially considering we closed in August, only a few months before the winter activity begins. It was important to get out of the gate in a hurry. Bridges have been built, information is being shared, and we began the systems-blending process shortly after closing. We will ultimately end up on one system. On the flip side, we are very happy with the positive spirit of the Inergy folks. They are eager to learn our system and better understand our operating philosophy, as well as share with us their base business practices, especially in markets where we are new. The team is focused on making sure the integration is a seamless event for our combined customer base.

In its first-quarter earnings report, Suburban references “significant milestones” achieved in preparation for the heating season. What were those milestones?

Stivala: The main goal heading into the heating season was getting our key operations management in place while minimizing distractions on our front-line employees and the combined customer base during the heating season. We accomplished that task. In addition, we centralized certain key functions, such as inventory management, dispatch, fleet and tank management, which, as Suburban has recognized in the past, allows our front-line employees to spend more valuable time focusing on the customer base. At the same time, we have been developing our plans for our eventual combined operating footprint and management structure; we’ve developed and tested our system migration plans for the conversion of key operating systems. And certainly, not least of importance, we have established regular communication with our employee base and the entire Inergy customer base to make sure we effectively communicate our plans to avoid any surprises or disruptions.

Suburban has increased its retail propane presence by 11 states, now serving 1.2 million customers in 41 states. How does Suburban ensure that its new and existing customers will receive the service they need?

Dunn: Our infrastructure systems and field leadership are in place to address combined customer needs. Also, we are in regular communication with the acquired customer base, providing updates as we work to become one company. As an example, when we send a new customer a letter, the letterhead includes the business name that is most familiar to the customer, alongside the Suburban name – we have tried to make it as reasonably simple and straightforward as possible. The letters, to date, have been well received by customers. We’ve opened the door in the customer’s mind that there’s been a change in name but not a change in service. The final goal of the integration is to become one company. Over the years, we have learned the driver and the phone service representative are the face of the company. It’s important for us to make sure these employees understand the plan and that they are able to convey their confidence on to the customer.

What percentage of Inergy’s employees did Suburban retain?

Dunn: Because Inergy was as decentralized as they were, we retained all field personnel as part of the acquisition and agreed to a transition services agreement to meet our corporate needs. Needless to say, some people decided to leave for various reasons.

How did this acquisition impact Suburban’s financial standing and what does it do for its future?

Stivala: Before the acquisition, Suburban had one of the lowest leverage ratios among all publicly traded partnerships and by far the lowest among our propane peers, which put us in a position to execute on this deal. It was financed with a good balance of debt and equity. Our balance sheet currently has a higher debt profile than we were accustomed to, but with improvement in earnings from normalized weather scenarios and by achieving synergies, our leverage will improve significantly. Our balance sheet remains very strong; we have more than ample liquidity and are well positioned to continue pursuing future growth opportunities. This acquisition put us in a good place. It doubles the size of the company, and it did not hurt our prospects for future growth, through the strength of our balance sheet.

The acquisition of Inergy doubles Suburban’s size and brings it closer to AmeriGas and Ferrellgas. What do you feel separates Suburban from its competition – the other majors and the smaller, independent retailers?

Dunn: Generally speaking, we like to think that we offer our customers a good service experience. Over the years, we have made significant investments in our people and our systems, and we believe we have put our folks in a good position to meet and anticipate our customer needs, as well as focus our team on growth.

About the Author:

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

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