M&A Experts Offer Advice
Mergers and acquisitions are commonplace in the energy industry, and a panel of professionals with deal-making experience shared thoughts on the topic during last month’s NEFI Expo 2015.
Steven Abbate, owner of the M&A consultant firm Cetane Associates, moderated the session, which featured two energy executives and three other consulting professionals.
Joe Ciccarello, Managing Partner of the accounting firm Gray, Gray & Gray, said one of the first things he asks a would-be buyer is why a particular target company makes sense for them. Are the margins the same? Does the company have similar culture and values? “It has to be a match,” he said. “Even if it is a retained gallons deal, you have put in so much time and effort and dollars that you will lose if you are not retaining a significant number of customers.”
Cami Segal, Chief Financial Officer for Devaney Energy, added, “At the end of the day, it is all about retaining customers. You must make sure you have the right people in place that can assure you retain the customers. Whether you bring in key managers and customer service people, it’s important to make sure you have the right people coming in.”
James Townsend, President of Townsend Energy, said deals are more likely to reach fruition if the buyer and seller address all they key aspects early. One of the critical steps in the transaction is the Letter of Intent (LOI), in which the buyer spells out their intentions regarding the type of deal, which assets they plan to purchase and a timeframe during which they will have an exclusive opportunity to buy.
Abbate said there was disagreement among the panelists about how detailed the LOI should be. Townsend explained that when he first started buying companies his letters were only a page and a half. Now they are typically five to six pages. “The more explicit it is and the more we can have discussion of mutual obligation, that makes for a smoother purchase process. Attorney Anthony C. Marts, of Goffstown, N.H., said, “If it reads like a lawyer wrote it, a lawyer will read it, and you can spend months negotiating that and never get any further.” He recommended that the letter stipulate a relatively short window for completing the deal, because the deadline will keep the parties from dragging their feet.
Ciccarello said it is simpler to complete an asset transaction than a stock transaction. In an asset deal, the buyer is purchasing only select assets, whereas a stock deal involves the corporate entity itself. Also, federal tax code is more supportive of asset deals and the tax relief can be like a 40 percent subsidy.
Once the LOI is signed, it is important for the buyer and seller to agree on how to allocate the purchase price across the assets. “If the two sides don’t agree on the allocation, you are looking for an audit,” he said.