Sail Energy Holdings is charting a course based on the principles of customer service, supply chain management and organic growth, says founder Dennis O’Brien, president and chief executive officer of the company headquartered in Portsmouth, N.H.
The deliverable fuels industry is one in which few value-added services have been developed, O’Brien tells Fuel Oil News contributing writer Maura Keller. Marketing is generally focused on delivering to core expectations, he says, and sales are more closely aligned with order-taking by an industry that seems to value technical knowledge while ignoring the importance of a sales process.
“Sail Energy is built on the belief that relying on simply providing an essential product and basic services is not enough to generate value, either for our customers or company,” O’Brien says. Hence the emphasis on customer service, supply chain management and organic growth.
But to launch itself, the holding company began with acquisitions. Its first deal, in March 2014, was for Murray Oil & Propane in Turner, Maine. Next was Adams Propane in Livermore, Maine, followed by Heutz Oil Co. in Lewiston, Maine.
“We moved to Massachusetts for our next acquisition, Pioneer Oil Co. in Worcester and Sturbridge,” O’Brien says. “We acquired Pioneer from Dave Brunell in November of 2015.” Next was Marr Oil in Worcester, acquired from Joe Germain in October 2016, O’Brien says. Germain continues as an employee with Sail. “Finally, in late December of 2016, we acquired Vaughn Oil in Smithfield, Rhode Island, from Ed Cardarelli. Ed, like Joe, continues to work for Sail today.”
With all that, Sail Energy now has operations in three New England states (Maine, Massachusetts and Rhode Island), an administrative office in Portsmouth, N.H., 125 employees and more than 20,000 customers, O’Brien says. As the founder, O’Brien is building the company with a familial experience of multi-generational business ownership within the industry. His grandfather started a small fuel oil company in Maine in the late 1940s, and soon began delivering bottled propane for cooking stoves. By the mid-1950s, O’Brien’s father started working at the family business as well as delivering kerosene in small pails to 55-gallon drums.
In 1962, O’Brien’s grandfather sold his company to Dead River Company in Bangor, Maine.
“My dad went to work for Dead River, at a time when they were expanding in Maine through acquisition of small, family-owned companies—not much different from today,” O’Brien says. “He was the guy who moved where the newly acquired company was, so my family moved five times in 10 years.”
In 1969, O’Brien’s father left Dead River to purchase C.N Hodgdon, a fuel oil and propane company, in Berlin, New Hampshire. After graduating from college, O’Brien began working for his father—learning everything he could about the fuel oil and propane business. Within a few short years, he purchased the company from his father and completed his first acquisition.
O’Brien says his extensive experience in handling all aspects of running a fuel oil business have been valuable in carrying out Sail Energy’s acquisitions. As he ventured from C.N. Hodgdon back to Dead River Company in the late 1980s, he says, he learned the importance of process, operational efficiencies, and ways of thinking about productivity that he still implements today. While working at Irving Oil as New England operations manager, he says, he learned to think strategically, eventually offering training sessions and seminars for fuel companies as the founder of Seacoast Energy Consulting, providing energy companies with guidance on strategic planning, leadership training, sales and operational consulting and mergers and acquisitions.
NATURE OF TRANSACTIONS
O’Brien and the Sail Energy team recognize that many of today’s acquisitions, especially involving family-owned businesses, are not just financial, but emotional transactions.
Vaughn Oil, for example, the Rhode Island marketer that Sail acquired, was founded in 1972 by Ed Cardarelli’s father, William. Ed grew up in North Providence, and began driving for the company when he was a high school student. Vaughn Oil’s 25 employees include Craig Aubin, equipment manager (pictured), who single-handedly maintains and repairs Vaughn Oil’s 20 vehicles, including nine oil trucks. Aubin remembers working outdoors on a cement pad in the 1980s and well into the 1990s, storing tools in an old U.S. mail truck. In 1996, Vaughn Oil built a five-bay maintenance garage.
“It’s not easy to let go of a family-owned business where your employees, and often some of your customers, feel like a part of your extended family,” O’Brien says.
As such, Sail’s acquisition strategy is two-pronged. First, it seeks customer service-oriented companies. Specifically, Sail is looking for companies with similar pricing and service philosophies, located in areas throughout New England that are good markets to compete in and have the earning significance to operate as a stand-alone or platform operation.
Secondly, it is also part of the company’s strategic acquisition strategy to combine these larger companies with a realized higher EBITDA multiple with smaller, bolt-on acquisitions that can be purchased at a lower number. The effect is to reduce the overall acquired cost while giving the operation larger mass, which reduces per unit operating costs, O’Brien says.
Specific characteristics critical to Sail Energy’s acquisition strategy include the location of the markets involved, O’Brien specifies.
“We have identified markets of interest as targets for acquiring energy retailers,” O’Brien says. “Characteristics of these markets include the number of residential fuel and propane customers within a 50-mile radius, average homeowner income, availability of competing fuels and projected market growth rates.”
They also evaluate the acquisition target size. According to O’Brien, larger petroleum marketers often see the value of their companies at the high end of or exceeding normal EBITDA multipliers.
“Mid-sized marketers offer a solid foundation of customers, and have become platform companies in these desired markets,” O’Brien says. “Smaller, bolt-on acquisitions with limited assets but with profitable customer lists are added.”
Storage facilities also play a role in Sail Energy’s acquisition strategy. If the market doesn’t offer a competitive wholesale supply point, storage facilities would be purchased or leased from the seller after a review of the facilities’ physical condition and environmental and safety compliance.
“Every potential acquisition gives us the opportunity to assess the seller’s real estate,” O’Brien says. “Decisions are made within the scope of how they could potentially impact customers, dramatically change our delivery cost structure and influence future growth, particularly if we have plans to expand our propane footprint. In short, it’s a decision based on the impact it has on the business and our strategic plans for the area.”
Vaughn Oil has always been exclusively a fuel oil dealer, in part because natural gas is entrenched from Smithfield southward to Providence, Ed Cardarelli and John E. Tolan, Sail’s director of business development, explain. In communities to the north, however, there are propane markets that offer potential opportunity for growth, they say.
SCOUTING FOR ACQUISITIONS
The company devotes a good deal of time during its due diligence process to understanding the current operating structure of a prospective acquisition, seeing how things get done and who is responsible.
“I also look for a good cultural fit,” O’Brien says. “We have a list of core values that describe who we are and what we feel is important. If it’s not a good fit, the transition won’t go well. The seller’s employees will be unhappy and that’s going to have a direct, negative impact on customers.”
In dealing with its retail customers, the company seeks to continually improve the level of engagement through innovation and interactive services.
“At the core of a retail fuel business, we are transporters,” O’Brien says. “Economy and efficiency are important as well, so we continually look at ways to both improve our dependability while decreasing costs. “
The Sail team focuses on asking what the customer values rather than making assumptions. They also continually remind each other of the importance of asking a question, and leading a customer to a solution that’s right for them.
While the characteristics of the customer base may not affect whether the company is an acquisition target, it does impact projected customer turn, therefore value, in financial modeling.
“Attributes for customers include credit and delivery profile, level of value-added services that have been offered, historic margin performance, past customer churn and pricing program implementation,” O’Brien says. “Interestingly, all the companies we have acquired except for Adams Propane were multi-generational—some like Murray and Pioneer extending back four generations.”
Acquiring a new company requires months of work, extensive planning and strategic negotiations.
“It’s a marathon, not a sprint,” O’Brien says. “If I were to give advice to someone thinking about selling their business, I’d tell them to talk to a broker who specializes in this industry. When you sell to a company like Sail, the due diligence process is simply a grind. We look at everything from financials to volume trends, from employee files to benefits packages. A broker can do the heavy lifting required to organize all that information. Without it, there is no way you’re going to maximize your selling price. He can also prepare you for the emotional ups and downs that are inevitable during this process. Just as I know that not all companies are a good fit for Sail, a seller should be wary of who they decide to sell their business to.”
Regardless of the due diligence involved, O’Brien loves the energy and excitement of acquiring a new company.
“One of the things Sail Energy brings to each transaction is the simple fact that he knows what the seller is going through—that selling your business can be as much emotional as it is financial,” O’Brien says. “It requires literally months of work, planning and negotiations and in the end, our goal is that everyone—my team, employees, customers, the seller—feel good about selling their business to Sail.”