subject: Ahern & Associates - Part Two of Selling Your Trucking or Logistics Business [print this page] Upon counseling dozens and dozens of trucking and logistics business owners, I cannot emphasize how important is, that you go through an emotional check list process, before you ever get to the evaluation of your business. We often say that selling your business is like planning your own funeral.
A major portion of your life is passing you by, and it is emotionally draining. Assuming that you can get past this issue, then the next step; consist of understanding what your company is worth, and that is also very difficult.
Our firm routinely finds that 9 out of 10 times the value of your business is not going to reach your expectations and r egardless of who you sell to, it will never reach your expectations. Going through this process, and understanding that once you sell your business, it is no longer your business, is very hard and very emotional.
First of all, most transportation Buyers are not interested in purchasing a business, where 50%-70% of the business is with one customer. They want to purchase a business that has diversity in a customer base and normally, Buyer's are looking for companies that have 10% to a maximum of 20% of their business with any one customer.
Also, it is important to understand what Buyer's are trying to accomplish; add to shareholder value. They also want to take depreciated assets and re-cast them on their balance sheet, at fair market value, so it doesn't affect their balance sheet as significantly as it would purchasing stock.
It is also important to understand that 60%-70% of transportation sales, are asset sales, not stock sales. Don't demand a stock sale, because if you do, you are going to eliminate 60%-70% of the marketplace--start with a "pool" of money and work backwards.
Don't worry about the tax consequences, because there are always ways to structure a deal, where it will have a lesser tax implication. However, recognize that taxes are a fact of life. Whether you want to pay taxes or not, you are not going to sell your company tax free. Assuming that you can get past these issues, how do you value your business? Your business is valued utilizing various processes, including earnings, contracts, systems, customers and intellectual capital: people.
Additionally, don't think that a stock sale will protect you, from past liabilities, because it will not. There is normally a "basket" deductible in the purchase agreement. The "basket" deductible states that if, claims exceed "x", the Buyer still has the right to come back to you for those liabilities.
Part I- Consists of liquidating your balance sheet:
Assets liabilities = net equity to the Buyer before a price is placed on your customers.
If you are an asset based carrier and have tractors and trailers, they will be purchased at orderly liquidation value, not fair market value. A Buyer will pay for these assets, and you will receive the equity from that equipment at the time of closing. You will be allowed to keep your cash, receivables and will be credited for pre-paid deposits that can be utilized; these will be paid over time.
Any 401(k), life insurance policies, etc. flow directly to the Seller and all trade payables are the responsibility of the Seller to pay off, at time of closing.
In reference, to terminal properties, normally a Buyer will NOT purchase the property. In the majority of instances, a buyer will lease the terminal properties with an option to buy and in some instances, they may not purchase or lease the terminal, if they have a location in the general area.
The most difficult value part, is the "Goodwill" portion of the business ("sweat" equity). This is defined as your years of developing the business and numerous financial and emotional sacrifices to get to "x". "X" is a difficult number, especially if you haven't made any money in the last 2-3 years.
However, even if you are not making any money, but you have a good book of business, you can still possibly receive 2% of your revenue for a 1-3 year period, plus assets, less debt. On the other hand, if you are a very profitable company, there are several ways to value your business.
1. If you are a larger company you may receive a multiple of EBITDA.
2. EBITDA is defined as Earnings Before Interest, Taxes, Depreciation and Amortization.
3. EBITDA value range (today) are 3 to 4 times EBITDA; (possibly 5).
Sometimes, that multiple is misleading, because if you sell to a Private Equity Firm, you cannot liquidate your balance sheet at full value. Private Equity requires that you keep a certain working capital in the business at closing. They are interested in purchasing the enterprise value, which would include your equipment. However;
Potential buyers of a trucking Buyer will normally pay, 1 to 3 times average earnings, plus assets, less debt; assuming the company is very profitable. Tractors and trailers will be purchased at Orderly Liquidation values. If the owner wants to stay with the company, that will be a separate negotiated contract.
Many times, accountants and attorneys, that do not have extensive experience in transportation, advise their clients that they should receive additional value for signing a "non-compete" agreement. Unfortunately, that is a false assumption.
In some instances, is there a way to maximize valueyes: If you are willing to stay and are willing to have some risks involved. The owner can do an "earn out" on a portion of the sales price which be predicated on achieving specific goals and objectives.
In reference to "Goodwill", will you receive all your "Goodwill" value at closing? No!
Most transportation Buyers will pay the liquidated balance sheet, and;
They will pay 25%-35% of your "Goodwill" "up front".
The balance will be structured over time, based upon a mutual agreement.
In some instances, there will be a guarantee pay out over a specific period of time, as long as the seller can retain a certain percentage of the revenue.
In other instances, it may be an "earn out" based upon achieving certain profitability goals and operating objectives when you are valuing a business or have it valued by a professional If you have an accountant or attorney value it, and they don't have extensive transportation experience you are not going to receive an accurate assessment of what the business is worth in the existing market.
Private transportation companies do not sell like publicly traded companies. The trucking business is a cyclical business. Whether you are a freight broker, logistics Company, or an asset based trucking company. Transportation goes through cycles; since trucking is a cyclical business; it is very difficult to receive a constant rate of return.
In closing, the question is: Is it the time to sell? The time to sell is when you are ready!
However, with that stated, if you have a profitable company, and you were able to make money the last several years, then it is time to sell, and the reason is very simple.
The tax laws will be changing in 2011, and if you were to value a $20MM transaction, today, the net effect after taxes, including; State, Federal, etc would be about $16.3MM.
That same transaction in 2011 will net $13.3MM; a substantial price reduction--this is the beginning of the process and assuming that you are mentally ready, then you need to place a proper value on your business, based upon current market conditions.
Ahern & Associates - Part Two of Selling Your Trucking or Logistics Business
By: Andy Ahern
welcome to Insurances.net (https://www.insurances.net)
