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let’s make a deal

By Julia Kuzeljevich


By Julia Kuzeljevich

The pace of mergers and acquisitions in the Canadian trucking industry could become a significant trend in the near future, according to industry analysts.

In a for-hire industry of more than 12, 000 carriers competing for about $35 billion in annual revenues, and dealing with an average operating ratio of just 6 cents on the dollar even in good years, large carriers have made it clear they would like to consolidate the industry, while medium-sized and small  carriers, have indicated interest in either growing by acquisition or selling. A recent survey of M&A trends south of the border found that 30% of fleets earning less than $25M annually are looking to sell their businesses within the next 18 months. More than 50% are interested in purchasing a company.

Doug Nix, vice chairman of Corporate Finance Associates, and Doug Davis, independent director with Pro-Trans Ventures Inc., provided their insights on this trend at the Driving for Profit seminar series,  sponsored by our sister publication Truck News, Dalton Timmis Insurance and Daimler Truck Financial and organized by NAL Insurance. The session, moderated by Transportation Media editorial director Lou Smyrlis, went into detail about current trends and how carriers can best respond. Last issue, we examined the appetite for mergers and acquisitions. This issue, we look at best practices for both buyers and sellers.

Insights for Buyers

 “What we’re seeing is that there are more buyers than sellers. But there are people who are coming out of the doldrums, who are saying ‘I’m not going to be at this forever’. I think a number of people are moving to that point,” said Davis, emphasizing that demographics will play a role in future mergers and acquisitions prospects, with the older contingent of the baby boomer generation contemplating retirement or an adjustment in hours worked.

It may make sense for some buyers to go out and look for companies that may not already be for sale. Many companies will be flattered by the interest, even if they are not interested in selling at that point.

“Our philosophy is to start with a strategy of looking for businesses that look ‘like this’. So our approach is to go proactive and look for these companies,” said Nix.

“If we create our profile of the perfect acquisition, we can figure out which ones are going in the yes and no bins pretty quickly,” said Davis.

Nix , meanwhile, complained that one of the “malaises” of Canadian trucking is that a number of people in the business are “bargain-focused” as opposed to paying a premium for a better business  but acquiring a stronger business in the longer term.

Purchasing in a specialized market, without enough knowledge of the market, could spell trouble, unless you aim for proper knowledge transfer, by offering the current specialists a retention bonus, for example.

“People talk about acquisitions for specialized markets. But trying to find the kind of specialized markets that appeal to people, something they will actually pull the trigger on, is tricky,” said Nix.

According to Nix, the specialized knowledge aspect may be just on the key parts of the business, and not necessarily on the entire business.

“How we define specialty markets is by ‘buried entry’. It can be specialized knowledge, permits, long term contracts, equipment, anything that makes it difficult for someone else to come in off the street. You have to pick up the people who have that specialized knowledge and in the end it’s about transferring that knowledge as a group,” said Davis.

He said that when it comes to all Canadian businesses trying to get into US markets, “they go to the US and they just trade dollars. They don’t often realize the importance of local expertise. There are so many different nuances territory to territory, region to region. Before you go to look in the US, in your checklist, you have to have a local understanding of the marketplace,” said Davis.

During an acquisition or merger, “over manning” the process for awhile is probably not a bad thing, said Nix, but if you have too many people it gets complicated.

Both he and Davis noted that having a transaction lawyer, banker, and your operations people on the team at the outset is a good idea.

Keeping your core business running in the background is another factor to consider.

“Do you have the bandwidth to do the acquisition? If you don’t have the people you will have a difficult time later,” said Nix.

“Your extended team for the acquisition later becomes some of your middle management. Your existing business can end up being run sideways-it helps to give your management team heads up about the possible need for them to take on a little more,” said Davis.

Insights for Sellers

If you are set on selling your company, the right time to sell is when you’re ready to, as long as you have a good quality business. But it’s essential that you maximize your company’s value.

“If you have a business that’s a bit of a dog, you probably need to get that fixed up,” said Nix.

“Clean your offices, wash your fleet once in a while. Get your books and records in order, and get personal stuff out of the corporation. To the extent you can cut down on this stuff makes it easier for buyers to see what the business is. I’m a big proponent of the competitive bidding process, inviting well qualified buyers into a controlled process. Sometimes if there’s just one offer on the table it’s a leap of faith to say that’s the best offer,” noted Nix.

“Get planning right now if you intend to be a buyer or seller over the next few years. If you’re a buyer then start to determine what you need to fix in your own business,” said Davis.

Often it’s a safety record, or general climate, that could use some attention.

“The one thing about mergers is that it’s rare to have a merger of two equals. Very early on somebody’s on first base. And safety is a key business risk. Generally poor safety means poor culture,” he said.

If you are selling to a family member, or transferring the business from one generation to the next, be aware the emotions will come into play, but financial issues should be handled intelligently.

“If you are going to do a generational transfer I implore you to get third party financing where the kids have to pay you at the time of transfer,” said Nix.


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