T r u c k i n g I n f o . c o m – H e a v y D u t y T r u c k i n g

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Fleet Management

Five Things to do Now to Increase Your Company’s Value TruckingInfo.com – May 2013 WebXclusive

By Chris Parisi, Allegiance Capital Corp.

Whether you want to sell your company in a

year, five years, even 10 years and beyond,

there are five steps you need to take right now

that will maximize your company’s value.

These issues are critical. Proper preparation

will enhance the value of your company, make

the transaction flow more smoothly, and avoid

pitfalls that often terminate transactions

midstream.

1. Clean Up the Financial Statements

“Clean” financial statements doesn’t just mean

that all the numbers add up and you know you

can make payroll. Buyers expect detailed

forecasts, budgets based on those forecasts,

and a Quality of Earnings report that validates

your EBITDA calculations. This includes

cleaning up the balance sheet and operating

slack, and eliminating personal expenses that

have been paid for by the company.

There are even firms that provide temporary

CFOs to manage this process and to prepare

companies for sale. Investment banks often

take advantage of those services to get a

Chris Parisi is managing director of

Dallas-based Allegiance Capital.

seller’s finances up to date and ready for

detailed inspection by prospective buyers.

Having great financials keeps the sales

process moving smoothly. The opposite

causes all kinds of delays, leading to deal

fatigue on both sides and less likelihood of a

successful transaction closing.

One of the biggest financial issues we often

see is buyers who look at financial statements

differently. They want to see how each

individual product or service that you provide

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contributes to the overall success of the

company. Often, owners just aren’t collecting

detailed financial data and keeping records

broken down to that level.

For example, if you operate a fleet that

includes both long haul and local delivery, a

potential buyer may want to see two separate

sets of financials for each operation to

determine which is operating most efficiently

and contributes the most to the bottom line.

Take a look at your financials through a

buyer’s eyes and make sure that you collect

and analyze data the way an acquirer will in

their due diligence.

2. Create a Great Management Team

Some sellers think that because the buyer is

taking over ownership, they’re also taking over

management, so the company’s current

management team is irrelevant. That couldn’t

be farther from the truth. Financial buyers, like

venture capital funds and private equity

groups, want to invest in companies, not run

them. These investors realize the seller has

created a successful operation and they need

your team to maximize the return on their

investment.

The investors may bring in some seasoned

experts to add value to your board of

directors, or provide a professional sales

executive if you don’t have one, but they’re

not going to jump in and immediately take

over.

Strategic acquirers or corporations who

purchase smaller companies operate the

same way. They need your current

management team to help transition your

company and integrate it with theirs. If top

management does want to walk away

immediately, or in the near future, competent

successors should already be chosen,

groomed and in place, ready to take over to

minimize disruption. Ideally, your company

would have a well-developed executive team

of competent professionals who are capable

of working together as a team.

3. Have a Clear Strategic Focus

Your company should have strategic goals

that are clearly communicated. Employees

should know your goal is to become the #1

refrigerated fleet in your region, and how you

plan to achieve that goal.

This is what Jim Collins, author of Good to

Great and Built to Last, calls a BHAG: a Big

Hairy Audacious Goal. His research found that

companies with a very clear focus on the

value-add they bring to their industry far

outperform their competition. Your entire

company should understand why it is the best

at what it does. It should be no surprise that

those companies are worth significantly more

to buyers, as well.

If it’s important to the company’s health and

growth to explore a new strategic direction, do

so, but don’t try to sell your company at the

same time. Buyers love a stable business plan

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that has been historically successful and is

positioned to continue being profitable in the

future. Have a clearly focused, executable

vision and goal that everyone in the company

understands.

4. Diversify Your Customer Base

Don’t put all your eggs in one basket. If 90%

of your revenue comes from one customer,

that is a big turn-off for buyers. Some trucking

companies have great revenue numbers, but

90% of it is tied up in one government

contract. Or, a majority of their sales comes

from a single, locally owned business. Even

the most risk-tolerant buyer doesn’t want to

take the chance that the company’s revenue

could disappear overnight.

If more than a third of your profits come from

one customer, or one closely-related group of

customers, you need to create and implement

strategies to expand. Diversify your services.

Secure new customers. It will make your

company more valuable -- and more viable.

5. Know Your Personal and Financial

Goals

Out of nowhere, a buyer offers $35 million for

your trucking company. That’s a huge amount

of money, but another company similar to

yours just sold for $43 million, and you got a

valuation recently that says you’re worth $40

million. Making snap judgments about any

offer based on emotion or incomplete data is

not wise or productive.

The real truth is that, until you have a willing

buyer in front of you, the value of your

company in the marketplace is exactly zero.

So it can be very useful to sit down with a

wealth management professional to clarify

exactly what you want to accomplish when

you sell your company.

You must determine whether it’s a yacht, or

enough money to launch your next company,

or a trust fund large enough that evens your

great-grandchildren will be able to go to the

college of their choice. How much money it

will take to achieve those goals?

Then, with your goals, motivations and

priorities clear, and with everything else in

place, you’ll be in the best position to make a

successful and profitable sale. You will

understand “why” you are selling and helps

you realize that the sale is helping you reach

an important goal in your life.

As the Boy Scout motto emphasizes – “Be

Prepared,” even when it comes to selling your

company. Being prepared to sell improves the

likelihood the transaction will be completed,

reduces stress during due diligence, and

enhances the value of your company.

Chris Parisi is managing director of Dallas-

based Allegiance Capital Corp., a M&A

investment bank dedicated to private middle

market businesses.

Related article: Five Key Facts About Selling

A Transportation Company