DENVER -- Bill Gallagher likes to set a new goal for his fuel distributorship, Offen Petroleum, after he reaches the current one. When he and his sister bought the company more than 22 years ago, the goal was to grow volumes from 7.5 million to 10 million gallons. It did so by forging supply agreements with big-box retailers—Costco and Safeway—and convenience-store retailers. As Offen proved its mettle, those relationships grew, and the goal became 50 million, 100 million and then 500 million gallons.
Those first 500 million gallons came organically, one customer and one truck of fuel at a time. (Gallagher took over ownership from his sister.) But Offen Petroleum’s next 500 million would come all at once—through acquisition.
In September, it acquired Overland Petroleum, doubling its volumes to 1 billion gallons and making Offen Petroleum one of the largest fuel distributors in the Rocky Mountain region. Offen, based in Commerce City, Colo., supplies branded and unbranded fuel in 12 states, as well as lubricants and diesel exhaust fluid.
It made this massive leap in scale with the help of its private-equity partner, Denver-based Lariat Partners, which made a strategic investment in Offen Petroleum in January 2018.
And now, CEO Gallagher is ready to create an even bigger volume target. “The new [goal], to make sure we can execute in the marketplace, is a 5-billion-gallon-a-year company,” Gallagher told CSP Daily News. To get there, Offen Petroleum is looking for more assets to buy, and it has a strong lure for potential sellers: the ability to close.
Match Makers
Overland Petroleum, St. George, Utah, was a “home run acquisition” for Offen Petroleum, Gallagher said.
“They had a very similar business model—primarily wholesale-driven—a small amount of legacy retail that they owned, and a large number of independent retailers that they nurtured and serviced well through transportation,” he said. Overland also built its business on logistics and was located in the intermountain West, “so we overlap well with strength of supply, and being able to leverage our supply relationships.”
But Gallagher isn’t expecting to find such a perfect match again as Offen Petroleum pushes toward its next volume target.
“If another Overland knocks on the door, we’re super-excited to make that opportunity,” he said, “but we also recognize in the universe of gallons, particularly in the intermountain West, the pickups are a little bit smaller.”
In talking to potential sellers, Offen Petroleum and Lariat Partners are expecting a few questions. “For a lot of the sellers, it’s the same thing: Where are my employees going? Are they going to have a home and be treated well? Price is maybe a secondary consideration for a lot of the entrepreneurial companies,” said Jay Coughlon, co-founder and managing partner of Lariat Partners.
“When Overland and I were communicating, it got down to: Am I comfortable doing business with you?” Gallagher said. “Do we believe we can move our people forward and give them new opportunities and then move customers forward?”
With Overland, one key concern was how Offen Petroleum would take care of its customers and employees, especially its drivers, which are tough to find.
“I don’t want to just put the camel’s nose under the tent to see how you operate your business, and extract that,” Gallagher said. “We build a lot more confidence with people we work with in the marketplace [because] one, we’re going to act with integrity and confidence—we keep information confidential—and two, we have the resources to close.”
Flywheel Effect
That last point is tied to Offen Petroleum’s private-equity backing, and it’s one the company hopes will seal the deal with sellers who have heard about the incredible multiples paid in some of the industry’s largest transactions.
“That’s why Couche-Tard was so successful: They didn’t pay the most, but you knew they were going to close,” said Gregg Budoi, operating partner for Lariat Partners/Offen Petroleum, referring to Alimentation Couche-Tard. The Laval, Quebec-based retailer acquired Holiday Cos. and assets of Jet-Pep Inc. in 2017 .
For Offen Petroleum, those future acquisitions will provide a momentum of sorts to help the company reach that 5-billion gallon target as well as scale that generates “little number” wins—for example, shaving a tenth of a cent or basis points off its fuel costs to offer more competitive prices to its customers.
“All of the add-on acquisitions are around the customer,” Coughlon said. “If we can buy a smaller wholesaler and use our supplier relationship to lower the price, we’re able to lower the price for the customer, and that creates a flywheel effect. We get more market share and the customer gets more profitability, and on and on.”
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