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Taking a ‘wait and see’ approach isn’t without risk

As Canadians, we tend to lean towards a "wait and see" attitude. You can see that everywhere you look in our industry: Let's wait and see how the economy fares in 2010 before making any decisions abou...




As Canadians, we tend to lean towards a “wait and see” attitude. You can see that everywhere you look in our industry: Let’s wait and see how the economy fares in 2010 before making any decisions about investing in new trucks; let’s wait and see how the latest engine technologies work out before purchasing new powerplants; let’s wait and see what happens to freight volumes before giving the thumbs up to that new terminal out west.

It’s not a bad approach -no doubt being cautious has kept many a company owner from getting overly excited and losing his or her shirt in a bad investment.

I must admit, I often tend towards the “wait and see” approach myself. Economic uncertainty naturally tends to feed the tendency towards taking a “wait and see” attitude.

That’s certainly the attitude that appears to be prevalent at the moment when it comes to mergers and acquisitions. On the one hand, those who may want to sell are held back by the cold reality that their company is not worth anywhere near what it used to be.

Also, many independently owned and operated trucking firms in the Canadian market do not have firm succession plans in place and in many cases no family members waiting in the wings and interested in becoming second-or third-generation operators.

Both those factors are pushing owners who could be selling towards a wait and see attitude, especially since the banks have not been anywhere near as aggressive as many thought they would be when it came to dealing with fleets on the ropes.

On the other hand, companies in a good position to be acquirers are being very cautious. Nobody wants to make a bad investment so soon after recovering from a nasty recession.

Yet, there are times when “wait and see” can have very negative consequences. That was made abundantly clear by the numbers provided by Elian Terner of Scotia Capital. Terner spoke at a workshop we recently put on in partnership with Dan Goodwill & Associates.

Consider that back during the industry glory days of 2002 to 2007 when trucking company valuations were going off the chart, we hit a peak of 10.7xEBITDA. Today trucking company valuations are down to about 4.2xEBITDA, according to Terner. As he pointed out, can you imagine how much was lost by people who took a “wait and see” attitude because they did not properly understand the market trends and their company’s value?

A return to peak valuations will likely take another five to 10 years, according to Terner and will require substantial sustained EBITDA growth.

If you think you should be selling, the “wait and see” approach may not be the best one this time around.

-Lou Smyrlis can be reached by phone at (416) 510-6881 or by e-mail at lou@TransportationMedia.ca.You can also follow him on Twitter at Twitter. com/LouSmyrlis.


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