“Strategic acquirers’ have shifted their focus from internal initiatives – bolstering balance sheets and increasing their cash positions – to executing on M&A [merger and acquisition] strategies to help drive their growth.” –Kenneth Evans, U.S. transportation and logistics leader for global consulting firm PricewaterhouseCoopers
Freight is plentiful and capacity is tight – or, in other words, trucks and the companies that operate them are in high demand right now. Thus, now is a time when some fleets are looking to expand their operations, while some want to sell in order to escape what’s become a business of extreme ups and downs in the last few years.
Yet regardless of whether a trucking company wants to buy another carrier or sell itself off, the ultimate question is HOW to engage in either strategy so as to obtain the most benefit.
For that reason, I got together with Dick Clepper (at right), a senior M&A adviser with the Woodbridge Group, LLC, and a longtime vetern of the trucking industry, to get some advice for carriers contemplating the buy or sell options.
“Assuming an owner is interested in selling his or her transportation company, there are some basics you need to consider,” he told me.
“The first is to be able to make an objective decision about the sale, what I call ‘letting go’ so you try and minimize the emotional component of the decision process,” Clepper said. “Second, understand that selling the company is a process; an event that will take place with planning, effective marketing, and professional assistance.”
Finally, he stressed that the seller must maintain reasonable expectations about the valuation of the company, understanding the current terms of sale common in the trucking industry, and having access to effective professional advice.
Now, what about those interested in acquiring trucking companies?
“Initially, the company looking to acquire should have a well defined strategic view of what the acquisition should accomplish,” said Clepper. “Will the acquisition position the company into a different component of the trucking industry? Or, will the acquisition provide additional opportunity within the company’s current operating footprint?”
Certainly, an evaluation of the acquiring company’s management team is needed, he pointed out: whether or not they can effectively manage the business through a period of significant change is an important piece of the decision process.
“Further, the acquiring company should have good advice as to financing options available,” Clepper said. “The current credit environment may provide transaction opportunity that had not recently been available.”
Yet, in any M&A transaction, a key piece of the puzzle is appropriately determining the value of the trucking company being bought or sold. “This is always a challenge,” Clepper explained.
To his mind, there are several critical fundamentals for valuation: Recent and projected earnings, revenue quality and customer base, management capability, employee (primarily drivers) retention performance, equipment value, real estate value, competitive pressure within the company’s operating landscape.
“Recognize that an owner dealing with the subject of company valuation can get caught in the fog of emotion,” Clepper warned. “That’s why professional assistance in objectively determining the value of a business is highly recommended.”
Yet do you really need such “professional expertise” to buy or sell a trucking company? That really depends on what you are trying to accomplish, said Clepper.
“If you know someone interested in buying your company, and you need to sell very quickly, you may be able to execute the transaction yourself,” he explained. “However, that tactic may not identify others who may be interested and would give the seller a better offer with more acceptable terms.”
So, if you are interested in seeing what the market will provide, then you should retain an M&A firm to give you professional insight and guidance.
“An effective M&A advisory company shouldn’t just be interested in getting you and a buyer to settlement,” Clepper pointed out. “A really good M&A company will be objective in providing you with many qualified offers that will allow you to take advantage of what the market has to offer at terms that are competitive and comfortable for you.”
And that brings him to his final point – how do you know when it’s a good time to sell?
“The best time to sell is when you are ready to do so and the market will opportunity to allow your strategic and financial objectives to be met,” Clepper noted. “Conversely, the worst time may be when you are forced to sell.”
Certainly, from where he sits, the forward view of the trucking industry provides a clearer picture for M&A activity as compared to the state of the industry just a year or two ago. For starters, the demographics of the trucking industry still reveals that many carriers – especially small and medium-sized ones – remain privately held companies, especially those with less than 200 drivers, with many are owned by people currently in their 60’s.
“Some of these carriers have legacy transition ownership plans, while others do not,” Clepper said. “With the forward view of positive industry opportunity, the trucking company owner would be wise to develop an effective financial plan that would include selling the company rather than waiting for the next economic downturn and, possibly, be forced into a ‘need to sell’ situation.”