Crushing the American Dream
Life, Liberty and the Pursuit of Happiness are, as the Declaration of Independence states, certain unalienable rights. The business world, and the delivered fuels industry (heating oil and propane) in particular, has enabled many people to pursue their dreams and create happiness for their families, employees and customers.
The fuel industry has some great history. In 1933 Leon Hess, age 19, formed Hess Incorporated (NYSE: HES). He purchased a 1926 second-hand 615-gallon oil delivery truck and began delivering to homeowners. Also in 1933, Abraham Slifka opened Slifky’s Reliable Oil Burner Service, delivering heating oil and burner service in the Boston area. Abraham’s two sons Fred and Richie, and then their sons, continued to grow the business now known as Global Partners LP (NYSE: GLP). The third-generation grandson of Abraham, Eric Slifka, is the current CEO.
Our company is one of the top ten national M&A advisory firms as reported by Financial Services Review in 2022. Our main focus is the delivered fuels industry where we have completed hundreds of transactions. We help entrepreneurs looking to exit their businesses and realize their dreams by selling their companies. It is a very gratifying career to help owners and shareholders transition their businesses. Finding the right buyer to continue their legacy, provide long-term employment for their staff, and helping to accomplish their financial goals is our mission.
There are always obstacles in working through a transaction process including providing accurate financial information, alleviating environmental concerns, negotiating indemnifications, and working through the legal process. These and other details of a transaction are challenging; however, we always worked through these obstacles, that is until we ran into a governmental road block recently.
Our clients started a heating oil and propane business over twenty years ago. Like Leon Hess and Abraham Slifka, they started with a truck and a strong work ethic. Like many successful people we encounter in the industry, they gave back. They gave back to their community, their employees and even their customers. They helped less fortunate people in their community and quickly gained a reputation as a reputable full-service provider of heating oil, propane and heating services. They did not grow their company as large as Leon or Abraham, but they grew it large enough to be able to sell it and retire comfortably, or so they thought.
As we worked with them through the process, all was going well until documents were filed with their State Attorney General’s office. That is when their American Dream started to get crushed. The AG’s office stated that there was not enough competition in the area and they could not sell to the larger companies in the area as it could lead to lack of competition and higher consumer prices. The AG’s office presented the buyer with a list of items that if they complied with, they would allow the transaction. The buyer was gracious, and in our opinion, went above and beyond to comply with all but one provision. The AG’s office wanted to impose price controls, not only on the new customers, but on all the buyer’s existing customers. As you might expect, that was one request the purchaser declined.
We met with the AG’s office and explained that six companies were serving the area and that there were little to no barriers to entry into the industry for other companies to startup. As a good friend once told me, all you need is a truck and knuckles to get into this industry. Knuckles knocking on doors was his form of marketing.
The AG’s office did not agree that there were almost no barriers to entry and told our client that if their only other choice was to go out of business and close the doors, then maybe they would consider approving the transaction. They requested a written plan stating that the company would cease doing business. Based on the source provided, being able to have safety protection barriers would be a great option. The crushing of the dream continued.
After seeking legal advice, it became evident that it would be extremely expensive and drag on for an unnecessarily long period to fight the battle in court. Ultimately the AG’s office would not approve the sale and our clients were forced to stay in business for now. Their other option is to close their doors and liquidate their assets. In the end, the customers will likely end up with the same companies that the AG’s office said they could not sell to.
As a politician once told me “I feel very strongly both ways”. I understand government controls to protect against anti-competition; however it seems obvious to me that competition, in this case, will continue and who knows, maybe another Leon or Abraham is out there looking to buy a truck and knock on doors and achieve the American Dream. — Steve Abbate
Steve Abbate is managing director of Cetane Associates (www.Cetane.com), which advises business owners in the home services industries on sales, spin-offs, and acquisitions; it also performs valuations and ad hoc corporate finance assignments.