Q&A: Should you sell your trucking business now?

How active is M&A in the trucking industry right now? Is it more of a buyer's or seller's market?

M&A in the trucking industry right now is beginning to heat up as companies continue to build their way out of a multi-year freight recession. We fully expect to see the number of transactions completed in the space to increase through the balance of the year.

From our perspective, we believe that it’s an opportune time for sellers to consider exiting as buyers’ coffers are beginning to refill. Over the last few years, regional operators who were buyers were more disproportionately impacted by the downturn versus the national players, which means that sellers exiting now will have new buyers eyeing their business as the recovery continues.

What are typically the biggest reasons why your clients want to sell their business?

While we’ve certainly had a wide spectrum of things motivating owners’ exits, the most common are generally tied to retirement, lack of a next generation/immediate succession of ownership or a desire to pursue new ventures. Our recommendation to all owners, regardless of whether they’re ready to sell or not, is to start considering exit optionality before it becomes necessary. Unfortunately, many owners fail to have these important conversations with their kids/partners about what the future holds until required because of personal health or business health arisings.

What factors should a motor carrier consider if they're thinking about selling their business?

The most basic factors of getting “your house in order” relate to 1. ensuring financial reporting is consistent and accurate, 2. reducing ownership dependence/key man risk, and 3. evaluating customer concentration and ensuring no risk in disruption post-transaction.

Aside from the basics, we always encourage owners to evaluate their current tax position and have a discussion with a wealth advisor to fully understand what is required from a sale (post-tax) to have continuity in lifestyle post-transaction. Many folks will either overestimate/underestimate their position and let that inordinately impact their view of what a “successful” transaction looks like.

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Do you find that small trucking carriers tend to undervalue their own businesses?

I believe that most carriers don’t know what the value of their business is versus simply overestimating/underestimating it. The reality is that being an operator is a full-time job and one that doesn’t stop. It’s very hard to be a good operator and keep a strong pulse on business values. The most common way small trucking companies are valued will either be off of a multiple of EBITDA (Earnings before Interest, Taxes, Depreciation & Amortization) or equivalent to the value of the assets (about 80% of FMV) plus some amount of goodwill for people/customers.

Do you recommend private equity investment for a small trucking company—why or why not?

It could be a good fit, but it depends entirely upon both parties. If the operator exists in a very niche end market doing differentiated work with a desire to remain post-transaction and roll equity, then yes, perhaps it makes sense. If there are limited growth opportunities (organic or inorganic) or a strong desire to exit post-transaction from ownership, it likely wouldn’t be the greatest fit.

What's one step a small trucking firm can take to boost their value?

I think the most immediate way is to reduce owner dependency. When the owner is able to share the customer relationships with folks who will remain post-transaction, remove themselves from driving or working on the truck, do billing, etc., it gives the buyer confidence that they can pay market value without having concerns regarding post-transaction disruptions if the owner were to leave.