Oil Prophets

Summer 2014

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32 Oil Prophets BUSINESS STRATEGIES According to a recent Meridian national survey, 65.3% of all petroleum marketers want to grow through acquisition. And last year, 46% of all marketers were solicited by three or more buyers but didn't sell. Another 24% had at least one door knocker, for a total 70% being solicited without selling. So, why didn't they sell? Likely lots of reasons, but the most obvious is they didn't receive an offer tempting enough to move forward. And for some, buyers may have unknowingly insulted them with their approach, their offer or both, killing any chance of a future transaction. To drive this point home, consider a marketer you might want to acquire. It's likely that one or two of your competitors have their eye on your target, too. So, let's say that you and two other marketers are knocking on the same door. Here is what could happen based on what I've seen: Buyer #1 (not you) is at a • petroleum convention and asks the owner of a target acquisition (let's call this XYZ Oil) if he ever thought about selling the business, and if so, he'd like to have first shot at it. The XYZ owner doesn't say no, so Buyer #1 joyfully thinks he has cracked the door open. Buyer #1 then relays this wonderful news to his team at their Monday morning management meeting. Buyer #1's sales team and drivers start telling everyone that they are about to acquire XYZ Oil. This news, now rampant at the rack, gets back to the XYZ owner who is infuriated. But Buyer #1, having no clue what has transpired since Monday, shows up at the seller's office as agreed on Friday, thinking he's about to strike a deal. Instead, he is flatly told the company isn't for sale. Then, Buyer #2 (not you) calls • XYZ probing about a possible sale. They've been friends for years. Although XYZ's owner is still soured from Buyer #1, he values the friendship and tells his buddy "Anyone would sell if the price is high enough" (a standard answer these days). Buyer #2 asks for financials and XYZ complies. Financial results the last two years at XYZ haven't been very good (after all, that's one reason XYZ's owner is not having much fun anymore and thinking of selling). Buyer #2 gives the financials to his CFO, and doing a quick EBITDA calculation, they excitedly decide they can pick up XYZ at a bargain. Since they are friends though and want to be "fair," they'll offer a higher EBITDA multiple than other owners were bragging about at the last refiner meeting. Buyer #2 verbally makes his offer. The seller silently thinks, "What kind of friend would think he can pay that for my life's work?" He doesn't want to rock the boat, so without saying anything to his buddy, he just mentally slams the door on him. Buyer #2 tries to move the deal forward, but XYZ's owner just avoids him like the plague. Buyer #3 (hopefully you!) asks for • a confidential meeting offsite, on a weekend, assuring XYZ's owner he is serious about buying XYZ because of all the loyal customers and areas of excellence he sees at XYZ. He stresses how both companies could benefit from combining operations. He assures the now very reluctant XYZ owner he is ready to pay a very fair price. Encouraged by that news, he agrees to meet. At the meeting, they explore all the possible synergies, and Buyer #3 explains how he will price How Smart Marketers Price Petroleum Acquisitions Today (And it's not an EBITDA multiple!) Betsi Bixby Meridian Associates

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