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Stage your truck fleet for sale – even if it isn’t

Whether or not you’re interested in selling your business, business owners should always keep it “staged” and ready for a sale for when the right opportunity comes along.

“You wouldn’t sell your car with two flat tires. You wouldn’t sell your house without cutting the grass,” said Mark Seymour, president and CEO of Kriska Transportation Group, speaking at the Truckload Carriers Association’s Bridging Border Barriers conference in Mississauga, Ont., Nov. 17. “Don’t try to sell your business if it isn’t clean. The buyer is going to pull the covers back and look for everything that isn’t clean. And if you have a bunch of dirt, it’s a waste of time.”

So, how does a business owner prepare their company for sale? It begins with discipline, Seymour stressed.

“Whether you want to sell, or you never want to sell, discipline is important,” he said.

M&A graphic
(Photo: iStock)

Preparing for sale or acquisition

Jim Peeples, president and CEO of Challenger Motor Freight, was brought into the organization with a mandate to instill discipline and prepare the company for sale, or perhaps even to make a major acquisition of its own. Either outcome would require discipline. The process ended with the sale of Challenger to Fastfrate Group.

“It took a long time,” he said of the process. “There were a lot of things that were broken and it takes time to fix broken. After a number of years, we had made lots of progress with financial results and processes and safety results and all the things that are important to running your business. Then we had the opportunity to have some conversations with other like-minded trucking companies to engage in a potential sale deal.”

He added: “If we had not cleaned up our house…we probably wouldn’t have closed the deal.”

Discipline also means maintaining appropriate equipment replacement cycles, even if it means incurring debt.

“Don’t be afraid of debt,” said Seymour. “It’s necessary to keep your business fresh and ready. Buyers will discount the value of your business if you stop your cap-ex cycle to keep debt down. You can’t stop replacing equipment.”

Prior to pulling off the Challenger sale to Fastfrate, Peeples had orchestrated six other mergers and acquisitions during his career. He admits several didn’t work out as planned.

Cultural fits

“Two things stand out on those that did not work,” he said. “Number one is making sure the cultures of the two organizations fit. They absolutely have to fit. Two, if you have competing capabilities in an organization when you join together, one organization always wants to lead. It creates a huge level of disenchantment on the part of the organization that doesn’t get to lead.”

Of those deals that don’t work, Seymour said some were just not a good fit while others were mishandled.

“There’s bad deals, then there’s deals that get handled badly,” he said. “If you make a bad deal, it’s your fault.”

Seymour added “speed kills” when it comes to making an acquisition. Focus on due diligence and don’t get emotionally attached to a transaction, he urged. “We’ve had deals that we didn’t close during due diligence. Everything about it felt really good until we pulled the covers back and found the shit that wasn’t asked or disclosed. It really sucks, because we already spent some time and money on it.”

Peeples added of deals don’t get done: “Sometimes those are the best decisions you make.”

Remove emotional attachment

Getting a third-party valuation is imperative, Peeples said. That helps remove the emotional attachment owners have to their assets.

“The current owner’s view of the value of their fleet doesn’t mean anything to the buyer,” he said. “Your company is only worth what somebody will pay for it.”

A professional third-party valuation will take into account not only the value of the equipment, but will also consider factors such as profitability, debt, cash on hand, receivables and payables. Beyond that, due diligence should dive deep into a carrier’s culture, safety record, and people.

“You can’t fix what’s broken.”

Mark Seymour, Kriska Transportation Group

“You can’t fix what’s broken,” said Seymour. “If you look at a business and you stumble across something that’s broken, you won’t be able to fix it. The previous owner allowed it to be broken, all the people around them got used to it and won’t let you fix it.”

A fleet that’s positioned for sale should also have engaged management in place. While the owner often promises to stick around for the transition, Seymour said that’s often not the case once the cheque clears.

“Make sure there’s someone there who’s more than capable of being the next leader,” Seymour urged. “We look to leave good businesses alone and protect their brand. If it’s all about the leader – the beneficiary of the sale, who is likely going to leave – we’re left with a leaderless organization or rudderless ship.”

As a buyer, Peeples said the value of a fleet’s equipment isn’t the only consideration but does provide some insurance if other aspects of the deal don’t come together as planned.

“In the worst case scenario I sell all the equipment and reduce the risk of what I paid for,” he reasoned. Seymour likened it to a pre-nup: “You’re preparing for the worst before you even get into it.”

Avoiding Driver Inc.

When evaluating a fleet for potential acquisition, Seymour said red flags would include the use of the Driver Inc. business model, bad CSA and CVOR scores, and the lack of a safety culture.

For Andy Transport, being in a sale-ready state without actually being for sale attracted an investment from Fonds de solidarite FTQ, a Montreal-based private investment company that took an undisclosed minority ownership stake in the company last month.

“We didn’t have much to clean up when we welcomed FTQ,” Andreea Crisan, president and CEO of Andy Transport said at the event. “There wasn’t much to do because we were running disciplined, and we were very lean.”

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