A Slow Merge Onto Acquisitions Expressway

Cetane Associates’ Steven Abbate and Oilheat Associates’ John Levey trade tips for buyers and sellers

According to Gray, Gray & Gray, LLP, 37% of retail fuel oil and propane dealers surveyed in the Northeast and the Mid-Atlantic regions are currently considering acquiring a business. That may explain why there was such a great turnout for the acquisitions seminar held at this year’s Eastern Energy Expo.

Oil & Energy was among the EEE attendees in the jam-packed Crystal Room at Hershey Lodge, where John Levey of Oilheat Associates and Steven Abbate of Cetane Associates presented “The Art of Acquisitions: What a Seller Needs. What a Buyer Wants.” The two energy industry consultants have worked with each other on numerous acquisitions deals over the years, and their well-established rapport was reflected by the easy give-and-take of the presentation. (‘If only all deals could go so smoothly,’ they might’ve quietly mused.)

A main reason one company might consider acquiring another, according to Levey and Abbate, is that growing a business organically is a very slow process, whereas an acquisition can instantly expand one’s base. Additionally, as more and more heating oil dealers consider expanding into propane, many of them encounter a challenging learning curve. Simply buying out a small propane dealer can serve to jumpstart the process.

Though acquisitions can provide immediate growth — and sales immediate income — the decision to buy or sell should never be made overnight, Levey and Abbate agreed. They offered, as an analogy, selling a car: before putting it on the market, one typically gets it detailed and takes care of any minor repairs; for energy retailers looking to sell their business, this means taking stock of the company, getting all financial statements in order, organizing all customer data, and typically, getting a valuation.

One of the most hotly debated points of any acquisitions deal, Levey and Abbate noted, is the purchase structure. Deals are most commonly based on “retained gallons” and/or “cash at closing.” The problem, the consultants explained, is that every seller wants cash at closing, but every buyer wants retained gallons, and the final terms need to be agreeable to both sides. This is why dealers turn to consultancies like Oilheat Associates and Cetane Associates in the first place.

Logically, the first step for a potential buyer is to find a potential seller. Once that happens, the buyer needs to evaluate the seller’s business. This involves reviewing potential geographic considerations; financial returns; product mixes (oil, propane, kerosene, Bioheat® fuel, etc.); human resources issues, like employee drug testing and CDL licensure; real estate issues, like tank release liabilities; and finally, differences in business culture. After all, big corporations and small mom-and-pop retailers operate very differently, so their customers have very different expectations.
And that’s just the first step!

Still, Levey and Abbate agree, with solid prep work and financial advice, an acquisition can be a win-win scenario for both buyer and seller. It’s all about finding the right fit and coming to the right terms.

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