Making Strategic Moves in a Wild Market
An interview with Gary Papay of CK Business Consultants, Inc.
Q: From your unique vantage point, what are your thoughts on the state of the refined fuels industry?
A: If you are in petroleum distribution today, you’ve got the price of fuel on your mind. We’ve been a spoiled economy in the United States. We’ve been living on low-priced fuel for a long time. Just take a look at Europe—they are paying a lot more for gasoline than we are right now and have been for many years.
Higher fuel prices are really driving the alternative fuel market today. That’s the trigger to bring venture capitalists and other investors into the game. Right now the risk level is about right to attract investors into the alternative fuel market.
Q: How do you think alternative fuels will affect your customers? I see on your Web site that you have a biodiesel or ethanol storage facility for sale.
A: The current listing we have is a former petroleum pipeline terminal which is suitable as a storage facility for ethanol and/or biodiesel. Both ethanol and biodiesel need storage facilities near rail lines. We’re seeing more alternative fuels with ethanol being used as a replacement for the MTBE additive in gasoline. I see alternative fuels making up a bigger part of our energy mix and at the same time addressing some of our antipollution initiatives. More demand for ethanol is happening right now, but I think it will be hard to replace gasoline 100% any time soon because of the large consumption in this country.
Something to keep in mind is that the $1/gallon days are over. We’ll have to adapt our economy to higher priced fuels. It’s hard to believe when you are filling up your car, but we still aren’t at the peak of gasoline costs adjusted for inflation as we were back in the 1980’s. Gas prices haven’t kept pace with inflation.
My customers are resigned to alternative fuels—some are actually looking forward to getting into the distribution channel. Everyone is wondering ‘how can I adapt and bring this on board?” There are supply issues, and from a marketers viewpoint storage is a concern. E85 ethanol may mean another storage tank in the ground, so there is some apprehension from an investment standpoint. Marketers are wondering if alternative fuels will pan out and support the investments made in more storage and other distribution equipment.
People may not realize how competitive gasoline sales are at the retail level—folks are lucky to make a profit margin of 10 cents/gallon. Some of the bigger guys, such as hyper marts, and big box retailers can buy gasoline on the spot market and get a better deal, then turn around and sell it cheaper than many branded marketers. Smaller distributors are getting squeezed and are subject to the public wrath about high energy costs.
Q: What are some of the strategic trends in acquisitions these days?
A: My answer is segmented by the type of company we work with. Heating oil distributors are typically in the Northeast and Midwest. There are a lot of larger regional players doing rollups in these areas. Now in propane, you have more nationwide rollups going on. Large national players and Canadian companies are buying up propane distributorships. The big are getting bigger—especially in heating oil and propane. If you have a substantial C-store chain for sale, the big guys are taking a look at them if they are profitable. New Americans are taking a look at individual stores if they can cash flow them and the banks will lend the money.
One trend we’ve noticed is heating oil distributors adding propane to their mix. Heating oil is a mature industry. There are a good crop of younger guys out there wondering what they can do to grow their companies. Their administration and back office systems lend themselves well to incorporate the propane business into their product mix in selective markets.
Q: Let’s talk about the process of valuation. What are some of the steps you go through with sellers during this process?
A: For business appraisals, we collect five years financial and gallonage records for analysis. We also take a look at asset listings and real estate. We recommend potential sellers obtain a certified real estate appraisal for any property involved in the business. That gets us started, and then we use four or five different valuation methods to estimate the value of the business on the market today.
Q: Do you have any recommendations for marketers to make their business more attractive to potential buyers?
A: Sure, we have a lot of guys coming to us for advice. The first step is getting your business appraised. Then we help sellers determine trends in their business. We ask them what they are going to do when the business sells. Are they going to retire? We’re in an advisory position, helping to develop exit strategies for the near or long term.
We highly suggest that marketers take a serious look at technology, such as DTN data services. Privately owned companies often don’t leverage technology as much as they should. Typically the owners are do-it-yourselfers, entrepreneurs who don’t want to pay for consulting. As a result—they aren’t as efficient as they need to be. Having a successful sale is all cash flow driven. It’s important to be more profitable and show some growth. If the company is declining year after year, it may be time to cash out and invest the proceeds in a professionally managed portfolio and/or another business. You’re better off selling now rather than hanging on to a dying business with little or no potential.
Meet Gary Papay, CBI, M&AMI, CMEA, CK Business Consultants, Inc.
Mr. Papay is a Professional Intermediary and Business Appraiser with over 30 years experience in the sale and transfer of petroleum/propane related mid market companies with sales volumes up to $100 million. CK Business Consultants, Inc. has been dealing exclusively in the sale and acquisition of businesses since 1984. They are qualified, experienced, and highly professional intermediaries working with both buyers and sellers in the successful transfer of business ownership. They handle all phases of the project including initial analysis, valuations, developing a company profile, locating qualified buyers, negotiations, and execution of the transaction.
Today, CK Business Consultants, Inc. continues to build upon its reputation as The Business Transaction Specialists in the Petroleum and Propane Industries.
Contact Gary:
Phone 888-425-3031
E-mail: gpapay@ckbc.net
http://www.ckbc.net
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The views and opinions expressed in this feature article are designed for educational purposes. The views do not necessarily state or reflect those of DTN.
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