Industry View: Anatomy of the Smaller-Firm Deal

By
Kenneth Shriber, Managing Director, Petroleum Equity Group

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During Petroleum Equity Group officers meetings, I provide a robust update on our work activities. This includes active deals to acquire wholesale and retail petroleum assets, financing coordination, and new prospective client engagements with marketable assets and businesses. The majority of our time is spent discussing the progress of the deals with the highest probability of closing.

Our sessions cover deal basics and timelines and answer many questions:

  • Is the purchase price agreed on?
  • How are the assets comprised?
  • What do the financials look like, and are they consistent?
  • Is there a memorandum of understanding (MOU) or letter of intent (LOI)? Is it signed by both parties?
  • Are the parties’ attorneys engaged?
  • Is the sale/purchase agreement being prepared?
  • What are the “sticky” issues to be finalized?
  • Are there supplier or tenant issues to contend with?

Inevitably, we also discuss at length the deal(s) with the greatest longevity (six to 12 months or more). Interestingly, this does not usually involve assets being sold by individual store owners or by large oil companies but rather the sale of an entire small to midsized jobber. And what we grapple with is: After many months of discussion, document generation, analysis and return models, and the most important terms agreed upon, why hasn’t the contract been finalized and signed so that the period of final due diligence can begin in earnest?

Can You Let It Go?

We work with companies big and small, and we work with the “in-between” category of company: closely held firms built from scratch with one to three principals, and fuel volumes of 5 million to 50 million gallons per year. This class of owner is smartly interested in selling; they know that, given the industry consolidation over the past five years, the influx of more fuel-efficient vehicles and higher interest rates looming in 2015, they will be completely vulnerable. At that moment, their assets will be worth less, plain and simple.

We love working with smaller fuel-distribution companies. They have unique personal dynamics. They bring many years of experience and knowledge to the table. For decades they have operated in their own sphere of influence, quietly and relatively immune to downward economic cycles.

Yet once the owners of these companies decide to pursue a sale, something emotional (and perhaps physiological) happens. While they are overjoyed by the prospect of a big payday, they recognize that their career of business building may be over. That “cashing out” means something more symbolic and spiritual.

To this category of sellers, the smaller fuel-distribution companies, I offer the following advice to help achieve transactional success and personal enrichment:

  • Feel good about what you have accomplished: While your feelings about selling might be mixed, this is what you have worked so hard for: to build a business that has strong market value and can now generate increased wealth for your family.
  • Once you decide to sell, SELL: The worst thing you can do is to court buyers and then have second thoughts. You will lose credibility. And if you break off a sale well into a process, then restart something a year down the road, for example, you will appear less attractive to the buying community and may get fewer offers at a lower price.
  • Once basic terms are agreed upon, stick to them: Interactions between buyers and sellers ebb and flow with each negotiation. Once you reach a mutually agreeable deal, keep your word. The moment you believe you can eke out just a little more money is the moment that you will lose your buyer. I have seen multimillion-dollar deals go south for less than $250,000. The best transaction type is one in which the seller feels he got a little less, and the buyer feels he paid a little too much.
  • Selling your company does not necessarily mean “retirement”: People often work their entire lives and never plan to stop. Take advantage of the skills, knowledge and relationships you have built up to chart a new path, make a new investment or enhance another business that you are involved in.

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