It was 2007 when I bumped into an industry crony at the airport who was helping a large Canadian fleet make acquisitions.
I was 47, and like many entrepreneurs of my vintage, most of my net worth was tied up in my trucking company, MSM Transportation. I was starting to think about how to turn that equity into long-term financial security for my family.
Four weeks after that chance meeting in the Air Canada lounge, an offer to buy MSM rolled off the fax machine. My head was spinning!
Unfortunately, there was no fairy tale ending. The price was sickeningly low and there were onerous conditions that gave me zero chance of retiring and no options to remain a transportation entrepreneur. The thought of staying on as an employee who had to ask for permission to play hooky at the lake every Friday wasn’t appealing to me.
Over the next few years at MSM I learned a lot about what buyers look for in a trucking company. I’ve learned even more during round two of my career in the M&A racket. Here’s what stands out.
Whose freight are you hauling?
The accepted thinking in M&A circles is that it’s not good to have too many eggs in one basket. Customer concentration—too much freight with too few customers—is common at small and mid-sized fleets. But that doesn’t scare buyers in transportation as much as it does in other sectors.
A more important factor for truckers is customer quality. Buyers value growth industries, the ability to scale, and pricing discipline. It also helps when the company owner owns the customer relationship. Sales reps pose a flight risk during a sale and buyers want to make sure the customers stick around. Expect any buyer to want a customer meet-and-greet before writing a cheque.
No monkey business
When I sold MSM in 2012, paper logs were the only game in town. Everyone “kinda” bent the rules. Put a husband-and-wife team in the truck and run forever.
Today, breaking the rules can break a deal. Driver Inc., over-writable ELDs, and removable of emissions systems are some of the no-no’s if you’re thinking of selling.
Strategic buyers are the crème de la crème and have zippo interest in fleets they think cheat. Almost everything is negotiable at the time of sale. Monkey business is not one of them.
In today’s hard insurance market a carrier’s safety and compliance practices are critical considerations to buyers—and valuable assets for sellers. Even the best carriers are struggling with insane premium spikes. Solid safety and compliance programs translate to lower risk for insurers and a better reputation with employees and customers. Nobody wants to write a cheque for a company knowing they’ll have to spend even more to fix the compliance program, improve hiring, and face insurance premiums that may never come down.
Dish on dirt
Carriers that own their property have more flexibility than the ones renting dirt. Sellers should plan to sell the company and property separately while being prepared to make the land part of the deal. Real estate is all about location, and there’s a high demand for properly zoned strategic footprints because they are so hard to find.
Renters have to be strategic. Leases are binding contracts that must be paid out when the buyer is not interested in assuming the deal. It’s wise to keep leases shorter as you get closer to packing it in.
Power to say no
The one intangible that drives valuation in the best deals is being “sell ready.” Having all their ducks in a row gives sellers the ability to take unsolicited offers and the power to say “no” during negotiations.
Fast-forward to 2012 when I bumped into another industry crony at my neighborhood coffee shop. His transportation company had just gone public and wanted to buy MSM.
Four weeks after that chance meeting at Second Cup, an unsolicited offer to buy my company rolled off the fax machine. It was better than the first one.
Mike McCarron is the president of Left Lane Associates, a firm that creates total enterprise value for transportation companies and their owners. He can be reached at email@example.com, 416-551-6651, or @AceMcC on Twitter.