When you’re ready to sell your business, it’s all about increasing the multiplier
TORONTO, Ont. — Don’t think you can stomach another recession? Tired of the grind? Ready to cash in on a lifetime of hard work? With tougher economic times potentially on the horizon, more trucking company owners may be looking for an exit from the industry.
By James Menzies, www.trucknews.com
However, few have done the work necessary to maximize their monetary returns and fewer still have a formal exit strategy in place. That’s according to Mike McCarron, former owner of MSM Transportation and now owner of Left Lane Associates, a new firm dedicated to monetizing transportation companies.
“Too many people don’t think about selling their business,” said McCarron. “They don’t plan until they have to and then, frankly, they’re leaving millions of dollars on the table.”
McCarron said most owners sell due to external circumstances he refers to as the four Ds: Death, Divorce, Disease or Dick partner. When it comes time to sell, there’s little that can be done about the key numbers – revenue, net income, EBITDA, etc. So the objective becomes to increase as much as possible the multiplier a prospective buyer will pay for your business.
“The numbers don’t change – the numbers are the numbers,” McCarron said. “At that point in time, that’s what they are, so worry about getting a higher multiplier. That’s what the game’s all about. That’s the difference between an average deal and a great deal. If you get a buyer from a three multiplier to a five multiplier, that could be worth $2 million. You have to reap the rewards of a lifetime of value and it’s incredible how many people do not plan to monetize their business. Turning something into cash is very difficult and the one thing you control is the multiplier.”
When you’ve decided to put your business up for sale, there are several things you can do to drive up the multiplier. For starters, make sure you really want to sell your business, warns Roger Poirier, managing director, investment banking with Cormark Securities.
“I’ll tell you what the biggest impediment is,” Poirier told Truck News. “It’s just making sure that the ownership group is actually committed to doing something and they already know what their parameters are. Of course, make sure your financials are in order, make sure all the contracts are easily accessible, make sure you’ve got a data room – but people can help you with that. That’s the kind of stuff we do and a whole bunch of other people do. But the biggest issue is, you’ll get to a sales process and they end up being not committed or unsure. And then the worst thing about that is you end up wasting a lot of peoples’ time and inevitably transactions don’t happen. I can tell you that has stopped a couple deals from happening this year.”
Getting cold feet may be a natural part of the selling process, but backing out of a deal will make it more difficult to sell in the future once you’ve established a flaky reputation.
Sellers should have a well-defined want list in place before they put their company up for sale. For example, do you want to include real estate in the transaction or keep it and operate a lease-back? Do you want yourself, a family member or partner, to maintain a role within the company once the deal is concluded? Those are the types of decisions that should be made before commencing negotiations, according to Poirier.
Selling your business is a lot like selling a home, said McCarron. The market will determine the range of prices within a neighbourhood, but by staging your home and giving it greater curb appeal you can shift the value of your home towards the upper end of that market range.
“What changes is where you fit in the neighbourhood,” he explained. “If you’re a good company and you have things like customers on contracts, you have owners that the business is not overly relying on, you have little customer concentration, you’re growing, you’ve got a customer relationship management system, you’ve got documented procedures – you’re going to get a higher multiplier than the guy that doesn’t have that.”
However, what you need more than anything if you expect to appeal to a prospective buyer, is profitability.
“If they’re not EBITDA positive, then all they’re going to get is the value of the assets,” Poirier said. “Because you can’t pay a multiple of nothing.”
One trucking company manager we spoke to said too many owners have little to show in the way of profits at the end of the year, aside from a nice salary for themselves. Generating a large enough profit to enjoy a decent living is fine – but it isn’t enough to entice a prospective buyer.
While there has been little in the way of M&A activity so far this year, Poirier said some deals are in the pipeline and there remains a solid base of interested buyers. Asked what these buyers are looking for in a target, Poirier said “I don’t think size is as important as culture. Culture meaning operating culture, so safety is critical. You’ve got good operating margins, good EBITDA margins. Niche markets are always worth more. If you’ve got a niche business that tends to be more defendable, buyers are always interested in that. I think companies that have good EBITDA margins and good safety track records (will command more) – and lower driver turnover in this environment is a really big plus as well. If you’re buying a company that has a track record of 100% driver turnover, which is reasonably common out there, you’re buying yourself a world of headaches. Lower driver turnover equals better corporate culture equals easier transition.”
Lastly, when it does come time to sell, get help. McCarron’s former company, MSM Transportation, paid an investment banking fee of nearly half a million dollars. He said it was worth every penny.
“What I’ve learned through the process is that you can’t do it alone,” he said. “You need a middleman to sell your business. Negotiations get personal and that’s why a lot of deals fail, because they get too personal. By the time the deal’s done, they hate each other.”