As an advisor to companies looking to sell their business we represent all types of energy companies including those that sell propane, heating oil, diesel fuel, wood pellets, gas stations and HVAC services. We are often asked how much companies are selling for. It is a simple question but there is not a simple answer. To really narrow down a value, we need to get into all aspects of the business to come up with an amount a willing buyer would pay for the assets of the company.
There are many factors a buyer will analyze to make sure that they are getting a good return on investment. It is all about return on investment and not about gallons. The home energy industry has changed in the twenty-plus years I have been valuing businesses. Many heating oil dealers in the Northeast have added propane as a product offering and the internet has forever changed the way homeowners shop for a fuel supplier. I recently learned that 50% of all purchase decisions made over the internet are made from mobile devices. That thought would have never crossed my mind when I purchased my first truly mobile phone, which came in a bag with a shoulder strap.
While a lot has changed, some things remain the same – as we were recently reminded. We took on a client who was looking to sell their heating oil company. We were pleased to Quality Companies Command Premium Values discover that 80% of the active customers were automatic delivery customers. Automatic delivery gallons were slightly higher than 80% but not much. That usually indicates a loyal will-call business. In addition, 70% of those customers had a service contract in place. The company delivered in an area where the income levels were average to above average and their margins, while not the highest in the area, were very healthy as compared to discounters and other full-service companies.
When we launched the company for sale, we were amazed at the response. We had our biggest response ever. After narrowing the field, we were left with several very attractive offers. Some were for all cash at closing. Others were almost all cash at closing. We also received several retained gallon offers which we did not consider. I once wrote that 80% of the offers we receive are retained gallons and 80% of all the sales we close on are cash or almost cash. This article is not the place to get specifically into valuations, but it is the place to point out that the demand for good company assets remains high.
If you have been in the industry for a while, you have heard this before: To build value in your company you should focus on 1) Providing full service (HVAC); 2) Get your customers on automatic delivery; 3) Keep your margins as high as you can; 4) Promote service agreements; 5) Promote budget customers; and 6) If you sell propane, own the tank. In addition to building value, you will probably take home a bigger paycheck.
Steve Abbate is the president of Cetane Associates, which provides hands-on merger and acquisition advisory services for privately held companies. Abbate has been providing M&A advisory services for most of his career. In addition to his track record of completing over 70 successful transactions, he has consulted with and performed financial and operational evaluations on hundreds of businesses throughout the U.S. STEVEN ABBATE Cetane Associates LLC 4504 Stonecrest Drive Ellicott City, MD 21043 410-480-4930 office 410-404-3199 cell