Planning for Success

Planning and Preparation

The ownership should include the involvement of several advisors early in the process. As always, the best advice is Professional advice, and now is not the time to cut corners that may leave money on the table by not being properly informed.  Consider starting with your banker, preferably an investment banker. The banker should be able to provide you with a deal strategy, preparation of materials, and strategy of execution based on experience.

Choose an attorney with experience specific to your field and type of transaction. The attorney will assist in defining corporate structure, tax considerations, and guiding due diligence prep. Contact Us to assist with recommending proven Transportation attorneys. 

A good accountant that will assist with tax considerations and preparation of financial statements.

At this time, include key top Management people in the process (CEO, CFO, VP Operations, VP Marketing, CIO), and possibly others. Keep in mind that it may be to their best interest through retention bonuses to be a willing participant, rather than to jump ship during a critical time for negotiation and maintenance of company performance.

By understanding the perspective of a potential buyer, the preparation of due diligence materials and information should be initiated before the transaction.  This should include financial, operational, and legal due diligence.  The information should be organized in an electronic format, easily accessible, yet protected until needed or transferred.  By using experienced professionals, it will ensure that there will be no surprises once the buyer conducts their diligence process.

Not all potential candidates (buyers) for acquisition will be a good fit. One needs to balance a broad group of buyers with concerns for confidentiality and competitive concerns.

 
Developing a Deal Strategy

Not everyone will stick their hand in the air and jump at the opportunity to purchase a challenged company. There has to be a reason, and to be smart about it, putting a failing or lackluster company on the market is not a new concept in a distressed industry.  By dealing from a position of strength, you may need to consider Timing your sale for economic, strategic, and financial strategies that will allow an exit strategy on your terms.

From a Strategic Perspective, what industry, niche, or potential do you bring to the table? Are you a regional retail van fleet, regional flatbed fleet serving the building materials sector, or are you a specialized fleet getting set up to serve the Wind power, Petrochemical, or Refinery areas?  Be aware that a heavy asset based transportation purchase is not at the top of Capital Venture of Investment Capital lists. They prefer 3PL and Brokerage operations that are considered non-asset or asset light.  Why? Take a look at the ROI.  With a high variable cost situation, as the venture succeeds, so do the returns. If the venture goes through a slowdown, there are no concerns to liquidate capital assets in a market that is flooded with the same type of capital assets.

Brokerage, Logistics, and 3PL providers are realizing greater returns on those initiatives, because asset based carriers are unsophisticated about their costs, have no effective marketing initiative and will haul the freight at depressed (below cost) rates. Most TL asset based carriers are purchasing trucks, trailers, bricks & mortar, participating on ineffective driver retention programs, are unaware of their costs, and do not use technology effectively, if they even have it.  As a Broker, I can net 10-15% with a phone call. As a van carrier, I bet you do not set your chart of accounts up to identify your cost centers, and have no idea how to rate a move for profitability.  Contact me to see if this is the case. As a Broker, I may have a software program, computer, and a phone. I bet with a 100K tractor, 30K trailer and all the associated costs, the Broker will net a higher percentage before taxes than a fleet of 100-500 trucks.

There are exceptions, but multi-axle operations, today, have the need for effective marketing, more than the margin inherent in Operating Ratios of 58-72.

From a Financial Perspective, what is the financial performance of the company? As an investor, I will want to know the track record of the business.  What are the business projections, do you have a business plan, and are there contracts in place that provide some semblance of a guarantee? If not, I will need to visit each customer to see why they do business with you, and if they will continue if a new owner with the same service standards takes over. What business valuation have you used?

There are as many valuation formulas as there are vacant trucks, at this point, and it would be advised to determine a value based on financials, revenue, retained revenue, fixed costs, and net before tax profits. Should you consider add-backs? These are the funds necessary to make the deal. Employee incentives to remain with the company? Professional services for preparation of due diligence? Broker fees?

By evaluating the strategic and financial strategies, you will be a better fit for a larger universe of potential buyers. By combining these efforts, you can then formulate a targeted marketing strategy that will focus on:

1. Price

2. Potential Buyers, Including Competitors

3. Auction

4. Stock or Asset Sale

5. Timing of Sale

6. Tax, payment, and indemnification issues

 
Intellectual Property

There are several components of knowing what is available in the purchase, and actually being able to purchase it.  Intellectual Property such as software, domain names, works of authorship, trademarks, company name, customer lists, algorithms, even the way a company does business should be investigated. An employee who writes a software program that is used in daily operations, even while in the employ of the company, may actually own the software program. Does the owner or perceived owner actually have the right to transfer those properties if they are valued as part of a transfer of company ownership?

Often, Intellectual Property must be registered and maintained by fees and periodic filings. Are trade secrets identified, and are there means in place to restrict that information and access to it?

Here is where legal advice should be sought.

It is important to be able to effectively know what you have before you can offer it for sale. By knowing your numbers, you can identify efficiencies and costs that can be positively changed, and position yourself for a higher valuation.

By having an efficient central operations, business development, and maintenance program in place, and by using current MIS, most things are in place to get on track for profitability. This can be evaluated and your fleet, or target fleet, better positioned for a sale or acquisition by putting programs in place for efficiency and profitability.

Contributing content by Benesch, Friedlander, Coplan & Aronoff