Assessing the Propane M&A Sector at the Top of 2025

As we look to kick off 2025, it’s worth reflecting on the transformative changes of 2024. A new administration was elected alongside a Republican-led Senate and House of Representatives, ushering in a dynamic political landscape. The propane industry celebrated significant legislative victories at both the federal and state levels, reinforcing its role in the nation’s energy mix. And we saw Taylor Swift’s Eras Tour become the highest-grossing concert tour of all time.

While 2024 saw robust activity in the propane M&A market, several challenges created overall headwinds. The continued phase-out of enhanced bonus depreciation limited certain tax advantages for businesses, while elevated interest rates continued to affect deal financing. Additionally, warmer-than-average winters in 2022 and 2023 reduced delivered volumes and impacted cash flows for many propane operators. Despite these hurdles, however, the propane industry remains resilient.

As the M&A market kicks off in 2025, many industry players are optimistic about new opportunities to consolidate, innovate and grow. A significant factor shaping this market is the age demographic of fuel business owners, particularly in the propane sector.

A considerable number of propane business owners are approaching retirement age, many without a clear succession plan. This trend mirrors broader demographic shifts across industries, as the baby boomer generation reaches “peak 65” — the point in history when the largest number of Americans turn 65.

As many propane company owners approach retirement over the next five years, we expect an increase in the amount of companies that will go on the market. This gets investors who are focused on consolidating industries very excited. The coming years are poised to bring substantial activity as investors position themselves to capitalize on this generational shift.

As we look ahead to what the 2025 M&A market will bring for the propane industry, it’s important that we consider three key areas. These include the broader impact of the overall economy on M&A activities, private equity’s impact and the implications of the evolving political environment.

1. Economy

The U.S. economy is positioned for robust growth in 2025, with GDP projected to increase by 2.5%. According to Goldman Sachs’ chief economist, Jan Hatzius, inflation has continued to decline, nearing central bank targets. “Most central banks are well into the process of cutting interest rates back to more normal levels,” Hatzius notes, signaling a favorable economic climate.

This improved environment is anticipated to drive a surge in mergers and acquisitions activity. EY (Ernst & Young) forecasts a 20% increase in deal volume for 2025, accompanied by a 9% to 10% rise in private equity transactions. These trends suggest private equity will play a pivotal role in shaping the evolving M&A landscape.

For the propane industry, these developments are particularly encouraging. With economic optimism growing and private equity firms continuing to enter as new buyers in fragmented sectors like propane for consolidation opportunities, the stage is set for significant deal activity. Combined with a strong economic foundation, 2025 is shaping up to be a banner year for M&A in the propane sector.

2. Private Equity

Private equity (PE) firms are sitting on record levels of “dry powder” — capital reserved for investment — that they need to deploy. Even more pressing, many PE firms have held onto assets longer than anticipated and must begin selling to deliver returns to their investors. Delaying these sales risks pushing them into a forced-sale environment with less favorable terms.

Looking ahead, many private equity professionals are highly optimistic about M&A activity in 2025. Over the past four years, the propane industry has emerged as a key focus for these firms. Propane’s remarkable resilience during the COVID-19 shutdown demonstrated the industry’s stability and positioned it as an attractive investment for PE firms and their limited partners.

Another trend fueling PE interest is the rise in middle-market and lower-middle-market funds, which focus on purchases of smaller companies than traditional PE firms. As the propane industry remains highly fragmented, these funds see a valuable opportunity to execute multiple acquisitions, effectively consolidating smaller operators into larger, more efficient platforms.

All these factors suggest that 2025 could bring a significant uptick in private equity activity within the propane sector, with a growing number of firms actively pursuing deals. For business owners in the industry, this could mean more opportunities to engage with interested buyers and capitalize on the market’s forward momentum.

3. Political Environment

Following the 2024 election, the propane industry is poised to experience both opportunities and challenges shaped by shifts in the political environment.

Opportunities:

Stability in legislation: A return to regular order in Congress is expected, allowing for smoother passage of appropriation bills and other essential legislation. This could bring more predictability to federal operations and funding processes.
Tax code revisions: Potential adjustments to the tax code may favor acquisitions, encouraging investment and growth within the propane sector.
Energy-friendly appointments: Executive branch nominations are anticipated to benefit the broader energy industry, including propane, by fostering policies supportive of energy infrastructure and markets.

Challenges:

State and local policy battles: Anti-gas initiatives are likely to intensify at state and local levels. States like California, Vermont and Massachusetts have already led the charge in advancing gas bans. As these efforts gain traction, they could deter investment in states with less favorable regulatory environments, particularly in areas where propane businesses lack well-established infrastructure.

Navigating this evolving landscape will require the industry to adapt strategically, advocating for its role as a cleaner, efficient energy source while addressing policy hurdles at both the federal and local levels.

As 2025 begins, the propane industry finds itself at a pivotal moment, shaped by shifting demographics, economic forces and an evolving political landscape. Despite facing recent obstacles — including unseasonably warmer winters, elevated interest rates and regulatory challenges — the industry has demonstrated remarkable resilience and adaptability.

Private equity firms, armed with record levels of dry powder, are increasingly turning their attention to fragmented sectors like propane, setting the stage for a surge in mergers and acquisitions. Coupled with a strong economic outlook, including projected GDP growth and declining inflation, the market is primed for expansion, increased consolidation and ongoing innovation.

For marketers, the road ahead is both promising and complex. Success will depend on the ability to embrace market changes, capitalize on consolidation opportunities and proactively navigate shifting policies. As the industry evolves, propane’s role as a reliable and efficient energy source will remain central to shaping America’s energy future.

With a strong foundation set, 2025 is positioned to be a groundbreaking year — reshaping the industry and paving the way forward in a changing world.