TD's Report on the Acquistion of Kamps Propane
US$240mm Acquisition of Kamps Propane in California
Event
SPB has entered into an agreement to acquire Kamps Propane, a retail and
wholesale propane distribution company based in California, for US$240mm (C
$299mm). Expected close: Q3/2021.
Kamps is expected to generate pro-forma run-rate EBITDA including synergies of
~C$42mm (~9.1% of our 2022E EBITDA).
Impact: POSITIVE
Kamps is SPB's sixth acquisition in 2021, placing the company well on track
to achieve its five-year "Superior Way Forward" objective of deploying ~$1.9bn
of capital on acquisitions. We anticipate that pro-forma the recent acquisitions
(including Kamps and Freeman), leverage increases to slightly above the highend of the targeted range of 3.0-3.5x. Management had indicated at its investor
day that leverage may temporarily spike if a series of larger deals were executed
but that it is committed to keeping leverage below 4.0x. We estimate SPB has >
$400mm of current available liquidity (plus $300mm accordion feature).
Kamps Propane, founded in 1969, is an independent family-owned/operated
retail and wholesale propane distributor based in California servicing ~45,000
residential, commercial, and wholesale customers. Kamps has 14 retail branch
offices, five company-operated rail terminals, over 375 vehicles and ~280
employees. Currently, SPB has a relatively small presence in California, largely
focused on wholesale propane distribution. However, the acquisition of Kamps
provides a beachhead for future residential tuck-under acquisitions in California
and also helps build scale in the western U.S., which could make entry into new
states more attractive as well (Nevada, Arizona and Orgeon). Recall, ~80% of
SPB's U.S. business is located in the Northeast.
Valuation (~7.1x post synergies and normalized weather): The US$240mm
cash purchase price equates to ~8.9x EBITDA of US$27mm. However, SPB
expects the business to generate run-rate EBITDA of ~US$34mm (C$42mm) after
realizing synergies of at least 25% and assuming weather consistent with the
five-year average (post-synergy multiple: ~7.1x EBITDA). The valuation is in line
with SPB's targeted multiple of ~7.5x announced as part of its "Superior Way
Forward" strategy and the recent similar sized acquisitions of Rymes and Freeman
(Freeman ~7.7x post-synergies and Rymes ~5.9x post synergies - lower multiple
reflects Rymes mix of both heating oil and propane customers.