Buying a Propane Company
Propane is used all over the United States from farmers using propane heat to dry their harvests, to underground mines requiring heated air ventilation, to propane-powered forklifts, propane powered school buses, or even using it to cook at home. So, when you think about all of the uses for propane, it should be no surprise that in recent years, we have seen an increase in family business owners seeking to buy propane companies.
As propane 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 of beating out the big guys is being a family business. While big guy come in ‘guns blazing’ you can come in from an angle of understanding family business dynamics and wanting to take care of the reputation built. 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: While propane is a cleaner energy source, there are still roadblocks that need to be tackled, which might require new capital investment.
For those of you looking to complete your first propane 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 propane acquisition advisors, we know that there is more than meets the eye when seeking to make your next propane acquisition. Let’s talk about some key value drivers for propane acquisitions:
- Customer Base: Is it residential, commercial, ag, or a mix? Do they have contracts or is it month-to-month?
- Tank Control: Does the business or the customer own the propane tank? If the company owns the propane tanks, how many?
- Fleet and Equipment: How many trucks (ages, miles, service records)? What technology (I.E. tank monitors)?
- Bulk Plant: Do you have one?
- Territory: What is the radius served?
- Safety and Compliance Records: What is the organization of these records that can be provided?
- Team Member Stability: What is the tenure of your team members?
Again, whether you are looking to make your first propane acquisition or your tenth, getting a business valuation for the propane 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 propane acquisition?
As propane acquisition advisors, we understand that when someone else reaches out to you, they might provide you with more information than what you are accustomed to. 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 a letter of intent (LOI) so you have an edge.
If you are looking to make a propane acquisition, here are some things you should consider reviewing:
- “True” Earnings: Do not be fooled by unjustified adjustments.
- Seasonality: If you only supply propane then you know your REAL busy season is during harvest and winter. What are the trends throughout the years?
- 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 acquisition advisors, we understand that it can become overwhelming fast when you consider “what is a fair offer?”, add a short timeframe, and mix in 4 other companies competing to win.
At Meridian our 2nd core value is Simplify. As advisors we simplify the complex. A propane business valuation is the best first step to get prepared for the nuances of the new potential operation and the process of buying a propane company.
I want to encourage you to reach out to Meridian so our advisors can help bridge the gaps you might be missing and talk about next steps.
