The State of the Delivered Fuels Industry

Kicking off the Energize 2020 Digital Conference last April, Steven Abbate, president of Cetane Associates (Kent, Conn.), provided an overview of the state of the propane industry amid the deadly coronavirus pandemic. “The propane industry is luckier than many industries,” Abbate said, noting that the gambling industry was taking a $261-billion per year hit on sports betting alone. Airlines, cruise ships, hotels, movie theaters, and live sports were also industries noted for the many billions being lost and massive job losses and likely bankruptcies to follow.
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Abbate shared data showing propane sales so far this year close to even with the previous year, despite COVID-19 losses throughout the economy. “The demand for stay-at-home services is up,” Abbate noted.

As further evidence of interest in stay-at-home services, Abbate shared data from Warm Thoughts Communications, a business serving many home heating companies, including many retail propane marketers. Their data shows organic traffic to digital clients’ websites is up 14%; pay-per-click campaigns for fueloil, propane, and HVAC are up 18% and the click through rate is up 13%; and total leads are up 10%. Warm Thoughts said that one of its campaigns for propane tankless water heaters had its best response ever the day after the governor of the state issued shelter-in-place directions.
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As for business sales, a major focus of Cetane Associates, he noted two sales his company is overseeing are postponed and six more sales that were about to come into the market were delayed due to the coronavirus. “Reasons for selling have nothing to do with the virus at this point,” he explained. “All reasons involve the usual situations for most companies: owners are retiring without a succession plan within the company; the company couldn’t find enough drivers/service people; or owners sometimes want to go into another business.” Asked if sellers should hold off due to the virus, Abbate felt that in most cases they should move ahead if they are prepared to sell. “In a couple of cases, we’ve seen some potential buyers back out due to concerns about being able to close, but we’ve still completed some deals with very healthy sale prices.”

“Buyers may have more reasons to hold off on a company purchase. They should definitely take a closer look at the customer base of the retail company. Are there a lot of commercial accounts in the hospitality or entertainment business? How do you think overall receivables will be affected?”

Asked about multiples of EBITDA (earnings before interest, tax, depreciation, and amortization) companies are selling for, Abbate reminded his audience that many factors go into determining multiples, but said that smaller companies are typically getting four to five times adjusted EBITDA, while larger companies that typically sell 5 million gallons or more are getting eight to nine times adjusted EBIDTA.

When questioned whether a decrease in gallons due to weather would affect company values, Abbate said that his company adjusts weather to a 10-year average and that some companies adjust to a 30-year average. He reminded participants that gallons don’t necessarily increase value; gross margin does. “Smarter marketers need to increase margin with fewer gallons.” — Pat Thornton