Buying a Family-Owned Heating Oil Company
Heating oil is a major source for residential home heating in the United States with about 4.79 million households relying on it as its primary heating source, according to the U.S. Energy Information Administration. Approximately 82% of those households are in the Northeastern region of the United States. In addition, many small businesses and farms use it to heat barns, greenhouses, workshops, and as a backup heat source in the event of interruptions to natural gas supplies.
As heating oil acquisition advisors, here is a pro-tip to stay ahead of your competition. Understand the why behind the seller’s decision to sell. Your competitive advantage to beat out the big guys is being a family business. While big guys come in ‘guns blazing’ you can come in from an angle of understanding family business dynamics and wanting to take care of the family’s reputation. Here are some of the reasons why family business owners are selling:
- No Succession: Family business owners have determined that their children are not prepared to take over the business, do not want to take over, or they do not have anyone to take it over.
- Market Volatility: After decades of seeing the volatility with supplier pricing and interest rate fluctuations they have determined it is time to start the next chapter.
- Regulatory & Environmental Pressures: Some heating oil jobbers are seeing declining demand due to governmental policy changes for cleaner energies.
If you are looking to complete your first heating oil acquisition or tenth, it serves as a great opportunity to grow! Here are three quick benefits:
- Grow your local market share
- Expand into a new market
- Diversify to a new product
As heating oil acquisition advisors, we know that there is more than meets the eye when seeking to make your next heating oil acquisition. Let’s talk about some key value drivers for heating oil acquisitions:
- Customer Base: Is it residential, commercial, ag, or a mix? Do they have contracts or is it month-to-month?
- Customer retention: The higher the tenure of the customer the greater chance they stick around after the acquisition.
- Gallons delivered: The greatest variability is weather. Does the volume trend match the weather history?
- Fleet and Equipment: How many trucks (ages, miles, service records)? What technology?
- Bulk Plant: Is there one or more?
- Territory: What is the radius served? And route density.
- Safety and Compliance Records: What is the statute of records? And are those records easy to provide?
- Team Member Stability: What is the tenure of the team members?
Again, whether you are looking to make your first heating oil acquisition or your tenth, getting a business valuation for the heating oil acquisition just makes sense. You wouldn’t allow one of your trucks to go down the road without insurance for fear of human and financial loss, so why risk a misstep on this heating oil acquisition? As M&A advisors, we understand that when another heating oil advisor reaches out to you, they might provide you with a Confidential Information Memorandum, a package of information about the business opportunity. Again, Meridian can walk you through that documentation, prepare a business valuation, and even provide a list of clarifying questions based on the information initially provided. You want as much clarity as possible before you submit an offer so you have an edge.
If you are looking to make a heating oil acquisition, here are some things you should consider reviewing:
- “True” Earnings: Do not be fooled by unjustified adjustments.
- Customer Relationships: If there are no contracts, understanding how long a customer has been with a company will prove to be either a success or down fall.
- Customer Concentration: What percentage do the top 10 customers make of gross profit?
- Company Culture: What is the tenure of the employees? How is their safety record?
As heating oil acquisition advisors, we understand that it can become overwhelming fast when you consider “what is a fair offer?”, add a short time-frame, and mix in 4 other companies competing to win.
At Meridian our 2nd core value is Simplify. As M&A advisors we simplify the complex. A heat oil business valuation is the best first step to get prepared for the nuances of the new potential heating oil operation and the acquisition process. I want to encourage you to reach out to Meridian so our M&A advisors can help bridge the gaps you might be missing and talk about next steps.
