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Consolidation Continues

In the 1970s, writes columnist Steven Abbate, many believed the world would soon be running out of oil:

In the 1980s I remember hearing that all the small family-owned propane and heating oil companies would be gobbled up by a few large companies.  Neither of those projections held true. The world is producing more oil and propane than ever. I don’t know if, in our lifetime, we will see the level of consolidation that was once predicted.

We are, however, seeing an uptick in acquisition activity, and I am often asked my opinion as to what is driving it. There are several reasons why family owned businesses are sold.

  1. Retirement continues to hold the #1 spot, with increased activity due to less family transition. The Millennial generation seeks socially-conscious careers and flexible work hours. While our industry is adapting, it is not high on the career path list and owners’ children are less likely to take over the family business than they were in the past.
  2. Enjoying life without the day-to-day worries of running a business has become another leading reason for selling. Some business analysts also call this FBB (fatigue, boredom, and burnout). Most owners have done well, but at the cost of burnout, especially during difficult winters.
  3. An owner’s financial situation, good or bad, can cause a company to come on the market. Typically, we see distressed companies looking to sell; however, we have seen the opposite several times. We saw one company come on the market after the owner hit the lottery for several million.
  4. Health trouble: We see some clients who want to settle their estate while they are still able to do so.
  5. Concern for the future of the industry has become more of a reason, especially for heating oil companies who have not diversified into propane. This is highlighted in certain geographic areas where conversion away from oil-heated homes has been as high as 5% annually.
  6. Fairly new to our list is the difficulty in finding drivers and qualified technicians. Many owners have had to step in and hit the streets in a truck or service van to take care of customers.

The good news for sellers is that there are still multiple buyers in most markets.  In this past year we helped a dozen companies with acquisition transactions and very few were gobbled up by the big guys. There was an average of 21 interested buyers for each of the companies we presented for sale, and we had as many as 13 offers on a single company. The buyers who have committed to staying and growing are eager to acquire companies.

The good news for the buyers is that the industry is still consolidating. Home energy acquisitions continue to present buyers with a great return on investment. All the reasons listed above continue to bring new opportunities to buyers. It should be noted that there are also new family-owned businesses entering the industry. Consolidation is happening and that brings opportunity for both buyers and sellers.

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