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Selling your propane business in the long haul

The gold at the end of the rainbow for many owners of propane companies is selling their business. Yet, the sobering reality is that the vast majority (between 70% and 90%) of mergers and acquisitions (M&A) transactions fail to successfully close, according to Harvard Business Review.

How do so many deals go off the rails? According to Forbes, “Approximately half of all deals fall apart during the formal due diligence stage.” In the past, due diligence was accomplished anywhere from 30-90 days, with the typical deal’s due diligence lasting closer to 60 days.

However, in today’s M&A market, there’s growing evidence that while deals are still getting done, the due diligence phase has become more in-depth and complex, extending the time it takes to close transactions. Buyers’ increased scrutiny within due diligence is an evolving challenge for owners hoping to sell as it prolongs an already stressful and cumbersome process.


Picture this: You spend decades building a successful business. You decide to sell and invest significant money and time trying to find a qualified buyer to sign a letter of intent (LOI) to purchase your company and begin negotiations, only to have your deal fall apart because of items arising during an extended due diligence process. How can owners address the new challenges that extended due diligence poses?

Brokers & Advisors: Quarterbacking Overtime

The pull-yourself-up-by-the-bootstraps mentality has served countless business owners as they build their companies. But in the world of M&A deals, a DIY attitude is a costly mistake for owners trying to navigate the intricacies of a sale, especially when faced with the minutia and stress of prolonged due diligence.

Studies show that businesses represented by a third-party advisor are significantly more likely to successfully make it to closing and sell. Even more, owners represented by brokers can expect higher valuations, increased market competitiveness and discrete confidentiality within a sale.

Too many times, owners make the mistake of thinking that just because they know their business better than anyone else (which they undoubtedly do), they’re the best person to sell their business as well. But while they know the business like the back of their hand, lacking the knowledge needed to navigate the highly specific issues within an M&A deal can cost owners dearly. Make no mistake — when it comes time to negotiate a close with the buyer, they’ll come to the table with an army of lawyers, accountants and other experts. Give yourself the best fighting chance possible by retaining an expert to serve as quarterback for your deal team.

Processes & Organization: Order Among Chaos

When a sale becomes especially drawn out, the best way to maintain order within the multiple ongoing facets and stages of due diligence is to have predetermined, established procedures and an action plan for requests, actions or communications made by the opposing buy-side.

Such an organization is especially helpful for when (not if) an unexpected issue arises during a lengthy due diligence. Moreover, having a third-party advisor on your side to enact your official procedures creates a cohesive authority structure for communication and conflict resolution when formally dealing with the buyer.

For example, during due diligence, the buyer’s advisors may conduct a quality of earnings, a much maligned but often necessary examination of the seller’s earnings where the buyer enlists certified public accountants (CPAs) and financial analysts to analyze the seller’s financials and tax returns with a fine-tooth comb to look for errors in sales or earnings. If a mistake is discovered, your appointed advisor would immediately put into place a predetermined plan to facilitate “putting out the fire.” This may include communicating with your CPA or bookkeeper to obtain the relevant data, substantiating the information with legal counsel and efficiently packaging the requisite material to the opposing side.

Task Management: A Tool for Every Task

Harnessing technology and electronic resources can help you stay organized amongst the seemingly endless conference calls, requests and emails during a long due diligence period. Chiefly, a virtual data room (VDR) is a secure online repository often used in M&A deals for document storage and distribution. VDRs are a cloud-based fold where your deal team can review, share and disclose any documents or information with the opposing buy-side. VDRs give owners an easy — and perhaps most importantly, confidential — way to share sensitive documents and files within the due diligence phase at the click of a mouse.

The best way to keep track of the nearly countless actions and items flying back and forth between the seller and buyer is with a due diligence “tracker.” As the name suggests, this is a file or document that keeps track of what documents have been provided (and which versions), confirmation emails sent, negotiation calls undertaken, dates of performance and other informational data relating to any due diligence requests or actions taken. Using these technology assets, especially if due diligence spans months longer than expected, can be vitally important in keeping track of the countless items being passed back and forth, illustrating that certain necessary actions have been performed, or knowing where and when any changes have been made and by whom.

Exclusivity: Time Dictates All

The deal’s terms, and consequently the structure of the sale, are initially dictated by the contractual language outlined in the LOI. One key provision should be given particular attention within a prolonged and convoluted due diligence.

As a symbol of good faith and commitment to the transaction, the buyer and seller typically agree to include an exclusivity period as terms of the LOI. Sometimes referred to as a “no shop clause,” this provision prevents the seller from continuing to market the business for sale, soliciting other, more competitive offers or pursuing any other negotiations with potential buyers.

A set time frame for the buyer to conduct due diligence, and by extension the exclusivity period, is established at the onset of negotiations within the LOI (frequently 30-90 days). Crucially important from a seller’s perspective if due diligence extends longer than anticipated, the exclusivity clause can be detrimental to the seller’s company and day-to-day operations.

If negotiations fall through, precious company resources were fruitlessly allocated while the owners may have missed out on other, more lucrative offers. An extension for additional time to wrap up due diligence can be granted if necessary. Savvy sellers should use any such requests by the buyer as a negotiation opportunity.

Ultimately, selling a propane company is a complex, stressful and exhausting process, all for a result that’s not guaranteed. With buyer demands increasing and due diligence requests digging into the most granular company details, sellers are rightfully hesitant to launch headlong into a sale. Still, the only thing worse than enduring a drawn-out deal is regretfully missing out on a good deal because you weren’t prepared.

PJ McIntyre is an attorney and co-founder of M&A Brokerage Group, a family-owned consulting group which specializes exclusively in the propane industry advising owners in the sale of their business. His M&A and legal background includes experience in all phases of the sale process, both as a sell-side and buy-side representative. He can be reached at 317-345-1349 or pj.mcintyre@mabrokeragegroup.com.


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