As we once again enter the high season for heating oil and propane fuel distribution and HVAC industry merger and acquisition activity, I ask our readers: Are you ready to battle on for another year or is it time to take your chips off the table? The challenges facing the distributed fuels and HVAC industries are real – most notably a rising call for environmental regulation by numerous states, a scarcity of qualified technicians and drivers, and the need for funding during a period of tightening lending standards. However, opportunities abound during periods of change such as this for those with the desire to push onward, staff properly and tack through the political winds (which are unquestionably stiff at present in certain quarters of the country).
One’s desire to face these headwinds is typically proportional to the strength of the support system and capital structure in place to seize growth opportunities. This means not only having your team of professionals in place to truly understand the changing dynamics of the regulations impacting your ability to do business, but also understanding what it will take in terms of financial footing to achieve your goals. We are of the opinion that this new environment – including the attacks on the distributed fuels industry from certain groups (irrespective, of course, of the importance of your services to millions of homeowners each day and the proven renewable fuels solutions you already bring to the table) – still presents ongoing opportunity for growth and profitability.
Beyond organic growth, the traditional growth acceleration strategy in the distributed fuels and HVAC industry involved the occasional purchase of a competitor when the opportunity arose. And this approach worked for many. As the pace of industry consolidation has accelerated and the sheer size of available opportunities has grown, however, the opportunity cost of this “slow and steady” approach has become more evident. Increasingly, we are hearing from more progressive companies that new acquisition approaches with private investment capital partners are not only of interest but are a required part of their strategy if they are to best position their companies with the efficiencies, buying power, staffing and expertise to navigate the increased costs of doing business we are seeing.
Likewise, business owners who are ready to cash out should be aware that there are options beyond simply watching their company, staff and culture be absorbed into the bureaucracy of a larger competitor or saddling their company (read: their family’s next generation leaders) with millions of dollars in debt to facilitate a generational transfer to unlock retirement funds. There are, in fact, ways for owners to both exit and participate financially in the future growth of the company you and your team built via equity roll-forwards.
Our hope for our blog readers is that you become exposed to additional ideas for exit or growth that have worked for others as you consider your company’s trajectory. We intend to share periodic writings in this section about our observations in the M&A space, trends, success stories and market factors driving owners’ decisions to provide you with additional perspective over time.