TerraVest: Risks, Growth Hurdles & Acquisition Multiples

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When you were selling these properties that you'd fixed up or helping someone sell a profitable propane reseller, what kind of valuations were the norm? Do you get a multiple on the cash flow that made in the last year?

EBITDA is a big factor, and we would look at the multiples. A reasonable multiple for a retail business was anywhere from four and a half to five and a half percent. That's reasonable to sell. Obviously, some would go at multiples of eight, depending on the demand and location.

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I now have a much better understanding of what you did at Propane Resources. Starting at a high level, industry publications indicate that around 40% to 50% of propane is used for heating homes and businesses. 20% to 30% for industrial applications like metalworking, food processing, forklifts, lawn mowers, etc. 15% to 20% for crop drying, irrigation equipment, and greenhouses, and another 15% for cooking and miscellaneous uses. I've seen various estimates on propane usage over the next 10 to 15 years. Since you're in the industry, I'd like to get your take. How do you think propane usage will fare over the next decade?

Where I'm seeing the big uptick and potential for propane is in auto gas. More and more school districts are switching to school buses that run on propane because it costs them about 85 cents a gallon, unlike $4 a gallon for diesel. It's cleaner, quieter, and the buses require less maintenance. There's not a lot of negatives to it.

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