DCC enters US LPG market with Retail West acquisition
International sales, marketing and support services group DCC announced on Tuesday that its DCC LPG division has reached agreement with NGL Energy Partners to acquire its ‘Retail West’ LPG division, Hicksgas, based on an enterprise value of $200m (£152m).
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The FTSE 100 company said its acquisition represented DCC LPG's entry into the US market, calling it a “further significant step” in DCC's strategy to build a global LPG business over time.
DCC’s board said the US is “one of the world's largest” LPG markets, calling it an “attractive and growing” market.
It said it is also “highly fragmented”, with more than 4,000 LPG distribution businesses operating in the market.
The acquisition of Retail West would reportedly provide DCC with a “substantial, high-quality” presence in the US with “leading” market positions in a number of states, the board asserted, adding that the business had an “excellent” customer base, a “strong and well-invested” operational infrastructure and an “experienced” management team.
DCC said the transaction was expected to complete on 31 March 2018, following receipt of customary regulatory consents and separation from NGL.
“The acquisition of Retail West in the US is an exciting development for DCC and is consistent with our ambition to build a substantial presence in the global LPG market,” said DCC chief executive Donal Murphy.
“Our LPG business has grown significantly in recent years and Retail West will give DCC a material platform for development in the large, fragmented and growing LPG market in the US.
“We very much look forward to welcoming the Retail West management and employees into the DCC Group and working together to grow and develop Retail West into the future.”
Headquartered in Illinois, Retail West has been in business for more than 70 years, currently employing 390 people.
It sells approximately 130,000 tonnes of LPG annually from 43 customer service locations and 58 satellite facilities.
The business trades under three prominent regional brands - Hicksgas, Pacer Propane and Propane Central - and a number of smaller, local brands.
DCC said Retail West has “leading” market positions in Illinois, Indiana and Kansas and also operates in seven other states across the midwest and northwest regions.
It added that the business has a “long-established and loyal” base of 65,000 customers, with around two thirds of annual volume sold to residential customers - predominantly for heating purposes - with the balance sold to commercial and agricultural customers in both small and large bulk format.
Retail West was said to have a well-invested asset base of approximately 100 bulk storage facilities and a company-owned distribution fleet of more than 150 vehicles, as well as owning the majority of tanks on customer premises.
DCC said the business has an “experienced and long-serving” management team who have a “strong” track record of delivering both organic and acquisition growth.
It has operated as a standalone division within NGL, and would continue to operate and develop under the leadership of its existing management team, post completion of the acquisition.
Retail West was expected to initially deliver an annual EBITDA of around $28m and EBITA of $20m.
The acquisition would be earnings accretive from completion, and the after tax cash payback would be approximately 10 years.
DCC said the business was well-placed to continue its track record of profitable organic growth, as well as provide a base for synergistic acquisition activity, both of which would further enhance returns.
“DCC LPG's strategy is to be a global leader in the sales and marketing of LPG, with a developing business in the retailing of natural gas and electricity,” the DCC board said in its statement.
“The acquisition of Retail West is in line with this strategy and will give DCC a material footprint in the very large, fragmented and growing US LPG market.
“It marks DCC LPG's entry into the US market and provides a substantial base for further development in the region.”