Although there is much uncertainty about costs, prices, specifications and other issues in the lubricants business, there is one thing you can be sure of. Lubricant marketers (distributors) are consolidating, and this has and will continue to have a profound impact on the business.
Consolidation among marketers started coming into focus in the 1990s and early 2000s, when a number of major oil companies merged. These deals included Exxon and Mobil becoming one in 1998; Pennzoils acquisition of Quaker State, also in 1998, followed by Shell swallowing them both in 2002; Chevron absorbing Texaco in 2000; BP buying Amoco Corp. in 1998 and then Burmah Castrol in 2000; the flurry of deals that by 2002 united Conoco, the former Union 76 Lubricants and Phillips Petroleum into ConocoPhillips; plus others. During that time, the number of major U.S. lubricant manufacturers declined from 16 to eight.
The ripple effect of these mergers was remarkable. Due to channel conflicts and redundancies in national distribution networks, the population of lubricant distributors in the U.S. declined sharply as the majors rationalized the number of partners they did business with. From an estimated 10,000 in 1999, the number of marketers in the business was sliced nearly in half by 2010. This is because merged majors had to make some hard choices.
To assure they retained and maintained relationships with their brands highest volume movers, and those with the brightest futures, several of the majors pushed and pulled for alignment with marketers that had resources to invest and solid strategies in place to grow their businesses, organically and through acquisitions. Many marketers that did not meet these criteria were dropped by their suppliers, and had to either scramble to find other suppliers, sell the business or shut their doors.
This was the first wave of consolidation, and it significantly culled the herd of marketers in the business. It primarily took the form of mid-size marketers acquiring smaller, regional allies or rivals in their area.
But it didnt end there – we now are seeing a second wave of consolidation. And in this current surge, the biggest are gobbling up the big players and capturing large pieces of geography covering many states.
The outlines of this second wave began to emerge soon after the first, when the private equity group Halpern, Denny & Co. acquired Bailey Distributing in New Hampshire to create Windward Petroleum in 1998. With the assistance of nearly $15 million of other private funding, Windward bolted on 18 lubricant marketers to its platform over a period of about three years. In doing so, it became the largest lubricant marketer in the country and expanded its geographic footprint from Maine to Florida. Unfortunately for its investors, this wave broke before it hit the shore. As a result, Windward downsized and divested non-strategic assets. Ultimately, it sold what remained of the company in 2011 to a strategic buyer, Booth Waltz Enterprises (aka G.H. Berlin) and former Windward executive Stephen Eldred.
Even so, the second wave was gathering momentum.
Backed by three private equity firms, Maxum Petroleum was created in 2004 to roll up fuel and lubricant marketers. And that it did. In short order, Maxum completed close to a dozen acquisitions including such heavy hitters as Simons Petroleum, Trevco, Hartney, Pecos (including its General Petroleum and Rainier Petroleum subsidiaries), Canyon State Oil, Petroleum Products and Paulson Oil.
PetroChoice is riding the second wave, too. Headquartered in Riddlesburg, Pennsylvania, and fueled by organic growth and the acquisition of 15 marketers since 2008, PetroChoice is now the largest distributor of commercial, industrial and passenger car lubricants in the Mid-Atlantic and Upper Midwest regions of the United States. Owned by the Greenbriar Equity Group, the company serves 31 states and blankets much of the Eastern Seaboard down through Florida, the central states from Louisiana to North Dakota and as far west as Colorado.
Also aboard is Reladyne Inc., headquartered in Cincinnati, Ohio, and owned by AEA Investors LP. Reladyne was formed in 2010 when four big regional players – Mid-Town Petroleum, Oil Distributing Co., The Hurt Co. and Pumpelly Oil – became one and were acquired by the private equity firm. From there, Reladyne continued to grow its business and expand its footprint with the acquisitions of Derrick Oil & Supply, Craft Oil, Hill Oil Co., NewComb Oils lubricants business and Maxum Petroleums Great Lakes lubricant business (the former Paulson Oil). At press time, Reladyne was being sold to Audax Private Equity.
These are just three large examples of how acquisitions are fueling the second wave of consolidation. There are more, but taken together, these three alone have condensed over 50 marketers.
Whereas you can be sure there will be more acquisitions to come that will further drive down the number of participants in the business, other waves are currently rocking the boats of lubricant distributors and putting marketers on edge. These waves are coming from the direction of some majors, who again are ramping up their efforts to reduce the number of marketers they do business with. As in the past, the majors will want to assure they sustain their relationships with those who produce the highest sales for their brands, and those with the brightest future.
How this next wave will break over the lubricant marketing scene is a story still being written.
Tom Glenn is president of theconsulting firm Petroleum Trends International, the Petroleum Quality Institute of America, and Jobbers World newsletter. Phone: (732) 494-0405. E-mail: tom_glenn@petroleumtrends.com