Source: https://www.gasworld.com/story/meritus-is-growing-its-network/2131615.article/
By Molly Burgess on Jan 02, 2024
When the owner of an independent industrial gas distributor is thinking about succession or a sale, it can be complicated. Many don’t want to give up the values of the family business or lose something important in a would-be sale.
One option in the market today is Meritus Gas Partners, which is busy growing its network and building a packaged gas distribution platform in the process. And the good news is that, in many respects, it takes that worry off the table for company owners contemplating their future.
“We are seeking owners who are not looking to solely ‘sell out’ but who would instead be interested in re-investing with us and together building a national gas distribution company that could rival the majors,” says Rob D’Alessandro, Vice-Chairman of Meritus. “We are committed to allowing them to remain independent and entrepreneurial, preserving their culture and brand, but we also support them to hopefully turbocharge their growth and improve profitability. We’re all about bringing opportunity to our partner companies rather than dictating direction.”
At the time of writing, Meritus has completed 15 transactions and reports a full pipeline of acquisition opportunities.
“We are certainly proud of our success so far,” D’Alessandro confirms. “We have a few more transactions that we are on the precipice of closing and nearly a dozen projects under some stage of evaluation.”
“We have people approaching us now asking about joining Meritus.”
The Meritus platform has grown rapidly since its founding. The operation set out in December 2020 with a blank slate and finished 2023 with ~$350m in sales. In 2024, it hopes to reach an impressive $500m by year-end. How will this be achieved?
Well, with a few years of history behind it, potential partners are now putting themselves forward, meaning Meritus is expending less energy on pitching its proposition.
D’Alessandro continues, “We have people approaching us now asking about joining Meritus. We have interest from high-quality distributors whose owners are contemplating their next steps and have watched our growth and/or have spoken to our partners about their positive experiences. All our partners have been effective ambassadors for our company. They have been sources of new projects and the best references for prospective targets. Each new acquisition brings more energy and more momentum – a flywheel increasing our opportunities.”
Meritus looks for a partner when it is eyeing a new geography. When this need occurs, the leadership looks for an entity that is big enough from both a size and capabilities standpoint to handle being a platform company. A platform partner should also be attuned to the potential of making further bolt-on acquisitions.
Right now, Meritus and its partners cover the Pacific Northwest, West Coast, Gulf, and Southeast regions of the US, but the aspiration is to build a national US footprint, with a possible reach into Canada as well.
“We’re certainly looking to grow further and to plug the geographic gaps we have,” D’Alessandro says. “We are committed to our goal of becoming a $1bn+ national distributor. We are considering expanding into Canada, too, because we have had some interest from distributors there as well.”
He continues, “There is a finite number of distributors. I believe there are around 800 in the US, but that number dwindles as owners sell. We are not a fit for everyone looking for an exit. We are only interested in those who fit our model and who are culturally compatible with us.”
Meritus and its leadership tells gasworld that it has never failed to be impressed with the people it has met on its partnership journey. As D’Alessandro recognizes, the industrial gases market handles dangerous materials, many of which are flammable, which poses a safety burden. Alongside the gases themselves, these small companies are having to juggle the retail side of things, insurance requirements, contracts, and much, much more.
“The businesses that we work with are not simple outfits. And for the most part, they’re family businesses where you have just a few people wearing multiple hats to keep things on track. That’s very impressive.”
D’Alessandro adds, “When we take them on and work with them, we want to ease some of the bigger stresses and give these excellent leaders the freedom to think about other opportunities for their business, which they may not have had the capacity to explore before.”
Not every partnership that Meritus makes results in a platform company. In the past few years, the company has presented several “bolt-on acquisition” opportunities to some of its partners. These purchases are not directly added to the Meritus platform but are instead added to the platform companies.
In 2023, the company completed two bolt-on acquisitions and are evaluating several more. The recent MagneGas acquisition is a good example. In February 2023, Meritus announced the acquisition of MagneGas Welding Supply – South, LLC. The purchase included seven retail locations and a state-of-the-art fill plant and specialty gas laboratory in the Dallas-Fort Worth metropolitan area – altogether, a nice array of assets. Mitchell Welding Supply, Meritus’ existing company in the Dallas-Fort Worth area, integrated all the assets into its business except for the Magnegas location in Huntington, Indiana, which was integrated with OzArc Gas Equipment & Supply.
Similarly, in May 2023, OzArc acquired Eagle Safety Products, an existing distributor of OzArc’s with a retail store in the St. Louis area. “These are opportunities we like to support,” D’Alessandro continues. “We want our partners to be acquisitive and to think in those terms. We want them to bring us opportunities that they see for complementary acquisitions within their geography. Many of our partners don’t have acquisition expertise. Supporting their acquisition efforts is critical to accelerating their growth.”
“The founding platform companies were selected because they have the type of management teams that can not only take their existing businesses to the next level but also have the managerial capacity to add other businesses to the mix,” says D’Alessandro.
Since its inception, Meritus has steadily expanded its management team to support the portfolio operating companies in growing their business and navigating challenges confronting them.
“Our partners have asked for and need support in certain areas. We like to think we have been judicious about adding the right resources at the Meritus level to support them. We added financial, product management, and human resource support and are recruiting safety, operations, and growth specialists in our priority product segments. And, like our acquisition candidates, we are garnering a lot of interest from talented industry veterans who want to jump on board.”
Allen Jezouit, Vice-President of Product Management and Digital Marketing at Meritus, for example, joined the Meritus management team in June 2022 off the back of requests from some partner companies. Jezouit focuses on sourcing gases and hardgoods, asset utilization, contracting strategy, website marketing, and instituting CRM across the Meritus system.
“We want to give our partners the flexibility and freedom to make choices and drive that by creating programs that they want to participate in. It’s not a directive: rather, it’s another option,” D’Alessandro explains.
The programs mentioned are often brought to light at Meritus partner meetings, which happen twice a year.
D’Alessandro says, “We bring everyone together at these gatherings, and we look at how each company can work better as an individual entity and at how they can better collaborate. At Meritus, we understand very well that our job is to facilitate that.”
The meetings allow everyone to better connect on a business level. The group members see these meetings as key to the growth of the platform, especially now that the numbers involved are growing and intra-partner collaboration is starting to take place without even any push from Meritus.
“When we’re gathered at these meetings, we’re constantly exploring new ideas. And the more these sessions take place, the more our partners have realized that their peers are resourceful people who have a lot of assets and experience that they can share,” D’Alessandro says.
Intra-partner collaboration is now coming to the fore, as mentioned. A recent example was when three partners collaborated to fulfill a customer request. “Ozarc supplied a tractor and Volunteer Welding supplied a trailer to make a delivery to a Mitchell Welding customer,” D’Alessandro says. “Mitchell was having trouble with the request, but they worked together with their partners to do what they needed to do, and the Meritus management team had no idea this was happening.”
D’Alessandro says these are the sorts of people the company wants to work with: those who can find a way to make things happen.
“That’s what sets them apart from their competitors. These independent businesses take customer service to the next level. They truly care about their customers and are now able to pull off even the most demanding customer requests.”
To further link the partner companies to the Meritus platform, its founders have allowed employees across the board to purchase an ownership stake in Meritus. The offer has fostered a spirit of partnership, explains D’Alessandro, and it goes beyond working for each other.
“Each employee under the Meritus umbrella has been given the opportunity to invest in Meritus in the same class of shares that our sponsor, all the roll-over sellers, and our management team own. We have over 100 employee owners now, from all walks of the business – managers, drivers, salespeople, and customer service people. It’s just another way to show our appreciation and forge a shared goal. We’re all in this together now, and we’re along for the same ride. I always hear people say they want their employees ‘to act like owners.’ At Meritus, our employees are owners.”
Looking to the year ahead, D’Alessandro says the company has set out two key priorities among its goals: building a safety-first culture and growing a specialty gases business.
“We obviously have growth and financial targets, but safety is paramount in our industry,” he states. “Meritus has always been vocal about safety, but we’re really starting to dive deep and look at how we can take safety to the next level at our partner companies. Some of our partners may not have had the capacity to hire a director of safety, for example. Safety was just a hat that all managers wore.”
D’Alessandro says Meritus may also explore the idea of adding safety resources at the Meritus level or regionally to assist its partners with instituting a safety-first culture.
“Just because not having someone solely responsible for safety has worked for years doesn’t mean it’s going to work forever. We need to help our partners really futureproof their businesses, and de-risk them in the process.”
“…we don’t think there’s any reason that we won’t achieve $500m by the end of 2024.”
Second on the hit list is investing in and properly resourcing a national specialty gases program. “We’ve clearly signaled our intentions to grow through specialty gases by virtue of the acquisitions we’ve made,” says D’Alessandro. “Applied Gas, Global Calibration Gases, and the Tyler facility we got from Magnegas are all key pieces. In 2022–2023, we also made substantial capital investments in a UHP hydrocarbon distillation column at Gas Innovations and an upgrade at Ozarc’s specialty gases plant in Pasco, Washington State. We need to grow our spec gases sales to support those investments.”
Ultimately, Meritus hopes that its efforts and programs for its partners will propel the platform to grow with its current partners and with further new ones.
D’Alessandro says in closing, “Barring any economic recession next year, which would impact everyone, we don’t think there’s any reason that we won’t achieve $500m by the end of 2024. We are committed to making it happen.