Paraco to Focus on Growth, Industry Advocacy

Propane marketers across most of the country are looking for additional sources of revenue as residential propane demand is in decline. However, the propane industry on the East Coast has seen strong demand after two cold winters. Paraco Gas (Rye Brook, N.Y.) is a prime example. The company has hired an outside board in response to its strong growth, and it runs its board meetings “almost as if we were a public company,” said Paraco CEO Joe Armentano. After completing several propane company acquisitions, venturing into the oil business, entering into a joint venture to sell forklift gas, building up its sales and marketing organization, and expanding its executive management team, Paraco has nearly doubled its business over the past five years. And 2015 is shaping up to be a record year.
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“This upcoming fiscal year — Aug. 1 through the next 12 months — we’re probably budgeting about 70 million gallons between propane, fuel oil and distillates,” Armentano stated.

Although the company’s growth started picking up about five years ago, it began to accelerate in 2012, when Paraco made a deal with AmeriGas (Valley Forge, Pa.) to swap some Paraco locations in southern New Jersey, Saratoga, N.Y., and some Virginia locations for several Long Island locations of AmeriGas. The acquisition gave Paraco about 40,000 total customers on Long Island. Armentano notes that the acquisition has been beneficial for both companies. Another Paraco/AmeriGas deal followed in August 2013, with Paraco acquiring additional Long Island businesses in Wyandanch and Riverhead that added up to about 3 million gallons of added propane business for the company.

Then this year Paraco completed what Armentano called “probably the best acquisition we’ve done to date,” when it purchased Kosco (Kingston Oil Supply Co, Saugerties, N.Y.), a subsidiary of Luk Oil of North America. The move resulted in Paraco acquiring about 3.5 million gallons of propane business, but the transaction also put Paraco into the retail fueloil business with about 10 million gallons in Hudson Valley, N.Y.

Paraco now services more than 12,000 Kosco retail fueloil customers still delivered and serviced under the Kosco brand and 10,000 Kosco propane accounts (most now serviced under the Paraco brand), in addition to the existing Paraco customer base. The acquisition included about 5000 Luk Oil customers that use propane and fueloil, and that business is co-branded as Kosco/Paraco. The propane business, of course, is branded as Paraco.
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“The good news is we have probably another 20,000 to 30,000 customers in that area that are propane-only, and this gives us the opportunity over the next year or two to try and sell them oil [in addition to propane],” Armentano noted. “It was an interesting acquisition. But I’m still very prejudiced: I like the propane industry a lot better than I like the oil industry. But I think in certain markets, there are some advantages of being dual-fuel.”

Armentano noted that Paraco’s joint venture into the propane forklift business, which the company entered in January 2012, has been successful. Joe Armentano’s father, Pat Armentano, who passed away in 2010, founded Patsems Incorporated (original company) as a welding and industrial gas supplier in 1968, so the forklift venture is a natural fit for the business. The transaction started in 2012 with joint ventures with Atlanta Propane Exchange, Florida Lift Gas, and Illinois-based Tri-State Propane Exchange, for a combined retail propane forklift fuel business of about 3 million gallons. Since then, the partnership has expanded to forklift fuel locations in St. Louis, Denver, Nashville, Baltimore, Miami, and Orlando, and the most recent was in Charlotte, N.C. All those locations have resulted in about 8 million gallons of retail propane forklift fuel business. Paraco opened a regional headquarters location under the name Paraco South in Charlotte to support the joint venture, and Mike Gioffre serves as president of that business.
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Outside board members help advise the business on the various new initiatives. The overall board includes Armentano; his brother, John, who is vice president of business development; and three outside independent board members. Like a public company, the executive team reports to the board, with board meetings taking place quarterly. Joe Armentano noted the group was necessary to provide a sounding board, which had been lacking since the death of Pat Armentano.

The outside board members include Dennis Glazer, a former partner at New York law firm Davis Polk & Wardwell; Steve Fournier of aerospace company Gar Kenyon; and recent addition Charlie Sabada, an Armentano family friend with an extensive finance background.

Customer growth is an increased area of focus, and for that, Armentano is going back to the company’s roots and how his father grew the business. Pat Armentano was a sales professional before he founded Paraco, and growing a business internally was his strength. Joe Armentano believes propane companies today focus more on operations than on sales and marketing. He noted that Paraco has been an exception, but over the past few years the company has stepped up its sales and marketing efforts. The business in 2014 hired Dan Kostecki as its new vice president of sales and approximately doubled its outside sales force to 17. Kostecki is looking for a 5% to 7% growth in new customers to increase the current customer base of about 120,000. Paraco is also working to retain the customers it has, and it hired Mohammad Naqvi several years ago as director of customer service. Retaining about 95% of the current customer base is among Naqvi’s goals, and to do that, he is focusing on improving customer service. The company has tracked the number of phone calls handled, but now the business has adopted new technology to measure the number of dropped calls and to call a customer back when the customer hangs up before reaching a live person.ParacoSBArmentano added that all industries lose customers for various reasons, such as credit collection or the customer finds a better price from a competitor. “Another reason is you simply don’t perform to expectation. We’re human,” he added. “We want to make sure we minimize problems and provide the customer with a great experience. We want to be able to respond to competitive pricing pressures, we want to be able to retain our customer base, and at the same time, make sure we get the margin we need on customers so that we can provide our customers the valued service we need to provide and they should expect.”Improved customer service will help his company continue to grow internally and through acquisition. Moving into the fueloil market in the Hudson Valley means the company will pursue new dual-fuel opportunities.
“We obviously love propane. It’s our bread and butter, and the traditional propane marketers continue to be good acquisition candidates for us.”    —Daryl Lubinsky


Michigan’s Largest Fleet of Propane Autogas Buses to Drive 
Detroit Public Schools’ Students

Beginning this school year, many Detroit Public Schools students will ride to and from school in school buses fueled by propane autogas. The 35 alternative-fueled Blue Bird Vision Propane buses will lower costs while improving the environment by reducing Detroit's carbon footprint. 

This is the largest fleet of propane autogas school buses in the state of Michigan.

“The use of propane autogas school buses is a step in the right direction to significantly decrease vehicle emissions and improve the air quality for our students. This also provides opportunities for students and the community to observe and learn first-hand about alternative transportation technologies,” said James Minnick, executive director of DPS Office of Student Transportation. “This environmentally friendly green initiative has also resulted in having a bus fleet that is 30 percent brand new.”
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ABC Student Transportation, Detroit Public Schools’ transportation provider, chose buses fueled by propane autogas because of the buses’ advanced technology, environmental benefits, and fuel and maintenance cost reductions, according to ABC Student Transportation president Charlie Grant.

“The adoption of propane autogas buses shows ABC Student Transportation’s commitment to implement buses powered by a fuel that is cleaner for Detroit’s students and the community, lowers operating costs, and is domestically produced,” said Phil Horlock, president and CEO of Blue Bird. “This is a great example of how the city of Detroit is being innovative in everything they do.”

The new Blue Bird buses are equipped with an efficient Ford 6.8L V10 engine powered by ROUSH CleanTech propane autogas fuel systems. Historically, propane autogas costs about 50 percent less than diesel per gallon and reduces maintenance costs due to its clean-operating properties. Currently, ABC pays 74 cents per gallon for propane autogas compared with around $3.00 per gallon for diesel.

In addition to fuel cost savings, the 35 propane autogas bus fleet will emit 12,445 fewer pounds of nitrogen oxide and 111 less pounds of particulate matter each year compared with the diesel buses they are replacing. Propane autogas also reduces hydrocarbon emissions and virtually eliminates particulate matter, when compared with conventionally fueled school buses.

To fuel the buses, ABC installed a station with a 12,000-gallon propane tank near its facility. “Propane autogas powered school buses offer advanced fuel technology for school districts looking for more efficient operation while experiencing a positive return on investment,” said Todd Mouw, vice president of sales and marketing for ROUSH CleanTech.

Icom North America EPA Certifies Liquid Injection Propane on Ford Transit

Icom North America, LLC of New Hudson, Michigan, extends its industry propane autogas fleet offerings with model year 2015, Ford Transit 3.7 Dedicated or Bi-fuel platforms. These Fleet Platforms are focused on Delivery, Shuttle and Work Truck vehicles, providing reduced fleet fuel costs as well as meet their sustainability goals with an abundant domestic fuel.
 
Icom's Vice President National Fleet Accounts, Bradley Wagoner stated, "Icom is continuously increasing its vehicle offering of EPA Certified Platforms available for our fleet customers allowing complete coverage for new and existing vehicles. This platform application is an outstanding opportunity for up-fitters, shuttle bus and Ford dealers across North America.”
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Icom’s propane liquid injection technology has obtained numerous EPA and California Air Resources Board certifications to power a full lineup of, Dodge, Ford, and GM vehicles (Visit http://bit.ly/1JMOGPu for additional information on Icom's EPA certified systems). The company develops, assembles and integrates the Environmental Protection Agency certified Patented JTG, JTG II, JTGhp, and JTG-D propane liquid injection fuel systems, as well as toroidal and cylindrical fuel tanks.
 
Ronny Martinez, Icom Autogas fleet development specialist noted, “Fleets will enjoy all the added benefits of using the Icom system which is technologically advanced guaranteeing a seamless integration, performance and reduced fuel cost. Icom’s exclusive Ford Transit option of Dedicated or Bi-fuel applications and wide variety of integrated tank solutions allows Icom to provide the best possible choice for customer needs. We have a large order bank of Ford Transit systems both dedicated and bi-fuel versions utilizing a variety of tank options.”  
 
Icom expects shortly to announce additional EPA Certifications for key fleet platforms and technologies further increasing its industry position as a provider of liquid injection propane systems.

Westport Innovations and Fuel Systems Solutions Enter Into Merger Agreement

Westport Innovations Inc. and Fuel Systems Solutions, Inc. announced that the companies have entered into a merger agreement to create a global alternative fuel vehicle and engine company. The transaction will result in a combined equity value of $351 million based on the closing trading prices for the shares of both companies on August 31, 2015 and combined annual revenues ranging from $380 to $405 million projected for 2015. The transaction is subject to regulatory approvals, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and other customary closing conditions. The transaction is also subject to the required approval of both Fuel Systems and Westport's shareholders. The combined company will have a core focus on developing next generation technology.
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The merger combines 17 brands in the automotive and industrial space and will allow customers and stakeholders to benefit from the consolidation of technologies, and the expansion of product portfolios, OEM relationships, and global distribution networks. The new entity will conduct business in more than 70 countries, represent a combined 100 years of experience and will trade on both the TSX and Nasdaq under the Westport Fuel Systems name, ticker symbol Nasdaq: WPRT and TSX: WPT, with a new business unit called Fuel Systems Automotive and Industrial Group. The companies' respective boards of directors have unanimously approved this transaction.

Last December, Westport Innovations acquired Netherlands based Prins Autogassystemen (Prins), developer of high quality alternative fuel systems powered by liquefied petroleum gas (LPG or propane), compressed natural gas (CNG), and liquefied natural gas (LNG) for light-, medium-, and heavy-duty applications. Prins operations in Europe were combined under the Westport Applied Technologies business unit.

Westport Innovations primary focus is technological development and commercialization efforts in the heavy-duty and high horsepower arena, while Fuel Systems focuses on the light- and medium-duty products for automotive and industrial applications. Their combined product development efforts will span passenger car to heavy-duty trucks to locomotives and marine applications to stationary power.

Improved profitability is expected even in current volatile market conditions, including untapped savings and merger synergies in excess of $30 million per year starting in 2016 and fully realized by calendar year 2018, excluding one-time costs, per an announcement on the Westport website. Included in the $30 million per year is $15 million in annualized benefits expected to be generated by Fuel Systems' restructuring program in 2016 and beyond, Westport's previously announced initiatives to reach adjusted EBITDA positive by mid-2016, and an additional $15 million in merger synergies through a combination of reductions in corporate management costs, manufacturing costs, and operating expenses. The combined companies will have filed more than 500 patents in LPG/CNG/LNG parts and systems worldwide. This combination of  intellectual property development and commercialization efforts is expected to expand the product pipeline for the industry.

Under the terms of the merger, Westport will acquire all of the outstanding shares of Fuel Systems common stock in a stock-for-stock transaction under which Fuel Systems shareholders will receive 2.129 Westport shares for each share of Fuel Systems common stock they own at closing, representing a 10% premium to Fuel Systems shareholders based on the closing trading prices of Westport's and Fuel Systems' shares on August 31, 2015 or an implied value to Fuel Systems shareholders of $7.54 per share. Following closing, existing Westport shareholders will hold approximately 64% of the combined company and Fuel Systems shareholders 36% of the combined company on a fully diluted basis. To date, shareholders owning 34% of Fuel Systems and 15% of Westport outstanding shares have each agreed to vote their shares in favor of the merger. Subject to the satisfaction of closing conditions and receipt of required approvals, the companies anticipate closing the transaction in the 4th quarter of 2015. Westport and Fuel Systems will operate as separate companies until that time.

Meritum Energy Holdings, LP Announces Acquisition of Texas-based Pico Petroleum

Meritum Energy Holdings, LP (Meritum) recently announced that it has completed the acquisition of Pico Petroleum, a propane and fuel distribution business in south Texas. Meritum noted completion of the equity raise and closing of the limited partnership that was created to acquire, own and operate propane, NGL and fuel distribution related assets and operations throughout the southern United States. Meritum closed on a credit facility structured to allow for the initial Pico Petroleum acquisition and also provides for significant additional capacity for future growth.
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For the past 29 years, Pico Petroleum has distributed propane, gas, diesel, oils and lubricants to customers in over 35 south Texas counties. “Pico Petroleum is an outstanding platform for us to build from,” explained President and CEO Chris Hill. “They have a great group of employees and have developed an excellent reputation for delivering the highest level of service and safety to their customers and we look forward to building upon that.” Pico has bulk plants in Boerne, Carrizo Springs, Uvalde, Del Rio, Pearsall, Floresville and Kenedy, Texas.

Meritum announced it will continue with the “Pico” brand and will operate under the name Pico Propane and Fuels. The company plans to expand Pico Propane and Fuels into new markets and broaden its service offerings in the propane and fuel distribution business. “We look forward to drawing from our experience and relationships in the industry to expand upon what Pico currently offers,” said Rob Chalmers, CFO and EVP of Business Development for Meritum. “Building a business development and sales team to support and grow the already quality operations of Pico is an exciting proposition for us.”

Meritum was formed in 2015 by Christopher Hill and Robert Chalmers, executives with experience in the propane, fuel distribution and natural gas liquids (NGL) industry. The company was founded to acquire, own and operate propane, fuel distribution and NGL-related assets and operations throughout the United States. “As we continue to grow the company through acquisitions and organic sales efforts, knowing that we have the capital to execute on that growth is critical,” said Hill.