For Sale?
Sellers want out, buyers are looking for a good fit.
Patricia Smith
Senior Editor
The owner of a small niche LTL hauler who claims to run the trucking company from a cellphone says he wants to devote full time to another business he owns.
The owner of a 23-year-old Alabama carrier with "very little competition in the area" says he wants to retire, but is willing to stay for a year to help with the transition.
A 120-tractor truckload contract carrier boasts 21% average growth over the past 6 years and a management team that would like to be part of the company's future.
Another "niche" trucking company, also described as "independent," is billed as the "ideal business for an active owner with a CDL."
Tap into an Internet business listing service like MergerNetwork or Business Nation and you'll likely get a screen full of trucking companies for sale — all sizes, all types, all markets. Business brokers admit that a few are fishing expeditions — curious owners casting for a high price. Many are distress sales. But a growing number of successful truckers see economic recovery, coupled with tightening capacity, as a window of opportunity.
"Trucking is a cyclical industry, we've seen it over and over again," says Lana Batts of Larson, Batts, Welborn & Co., a mergers and acquisitions consulting firm that specializes in truckload carriers. "They'd much rather sell on the upswing than the downswing."
While fleet owners want top dollar for the businesses they built, their reasons for selling are usually psychological as well as financial. "The last few years haven't been fun," she explains. Soaring fuel prices, a depressed used truck market, skyrocketing insurance premiums, and an economic recession took a toll on many companies. Those that survived continue to face some tough challenges, like the added risks many carriers are assuming to reduce insurance costs and the ever-present driver shortage. On top of that, trucking is entering a new era of computers and electronics.
"What I hear a lot is 'I've learned the business twice — once before deregulation, once after. I don't want to learn it again,' " Batts says.
But the time may not be right for everyone. Andy Ahern of Phoenix-based Ahern & Associates says they get 50 to 70 calls a month from trucking company owners who want to sell. Unfortunately, most have little to offer a buyer. "Lots of accountants and business brokers are saying 'sell, because the market is hot,' " he explains. "But it doesn't work that way. Most of these companies aren't making any money. Their rates are depressed. And they have high driver turnover. So what do they have to sell? We say 'fix the company, then sell.' "
Ahern is a mergers and acquisition consultant, mainly representing motor carrier buyers looking for specific types of operations in specific areas. The company also offers management consulting services, including packages for small fleets. He says they can sometimes turn a company around relatively fast, but the most successful exit strategies are planned as much as 5 or 6 years in advance.
"We look at the organization and how it's currently structured," he says. "We look at potentials, at market share and the rating structure. The plan we come up with says 'Here's where your are now, here's where you need to be, here's how to get there, here's your exit strategy in five years, here's what you can expect for your company if the market holds.' "
What Buyers Want
Business brokers say sellers often want some sort of industry gauge, such as a multiple on earnings, to give them a rough estimate of what their company is worth. Unfortunately, valuing a business isn't that simple.
"Your company is worth what a buyer thinks it's worth," notes Batts. And buyers in the market for trucking companies have some very specific requirements.
Most analysts believe we will start seeing more outside money coming into trucking as the big carriers continue to report improving profits. For now, however, those in the market for trucking companies are established carriers looking to round out their offerings or improve their bottom lines.
In some cases, carriers are looking to diversify — a van carrier buying a flatbed operation, for instance. Those acquisitions usually result in some streamlining but, for the most part, the intent is to keep the new company intact. However, the majority of buyers are looking for companies with drivers, customers and sometimes even equipment they can "tuck into" their own operations, says Batts. Thus the fit has to be good.
For instance, buyers aren't going to pay to get customers they already have and they're not going to buy a carrier with significantly lower rates. "If your revenue per loaded mile is $1.38, you're not going to buy a company getting $1.08 per mile," she explains, "because if you go to those shippers and try to raise the rates 30 cents a mile, you'll lose every one of them."
Sellers who do best are those who have ready answers to specific questions about their customer base and their operations, she adds. "You need to be able to say 'Here are three reasons why you should buy my company: My revenue per mile has been going up; my empty miles have been going down; here are my trends.' The fact that you've been in business 45 years is not a reason to buy your company."
Experienced drivers are a hot commodity but a skilled workforce isn't automatically transferable. If low driver turnover is due to the unique personnel skills of the selling owner, buyers will likely want that person to stay on for a while.
Ahern says 50% of acquisitions fall short of expectations because buyers look at the financial and legal details but overlook potential clashes regarding culture, operations or rules.
"For example, if you govern your trucks at 58 mph and you buy a company that runs its trucks wide open, what do you think is going to happen? You're going to lose their drivers," he notes. "A lot of companies don't think about that."
Older, high-mileage equipment doesn't add anything to the deal but the used truck glut appears to be over and sellers can expect a reasonable price for their newer equipment — especially trucks purchased just before the 2002 EPA emissions changeover. Batts says sellers with a good fleet of pre-EPA 2002 engines will probably do better than those with 2003 engines because of the lower fuel mileage with the newer engines.
"But the '02 engines have to be low mileage," she adds.
Operations continued...
