Whatever your experience in the trucking industry has been this past year, I think we can all agree that 2020 has been different. I’ll spare you from having to rehash all of the highs and lows from the past 10 months, and instead focus this article on where these events have landed us today, and why it has created some strong advantages for potential sellers. Below is a brief M&A update in the form of 5 reasons to consider selling your trucking business now. Enjoy.
The current capacity shortage has been the largest disrupter we have seen in the current market. Large national companies that would traditionally not entertain acquisition opportunities with less than 100M in annual revenue are suddenly looking at companies with as few as 10 drivers because they simply need access to drivers. While this certainly creates some advantages for sellers by increasing demand, the main value this brings to the market is the ability to get deals done quickly. Large strategic buyers can access their value of a company much quicker than other strategic buyers simply because they know what they are looking for and they have in-house advisors who look at deals every day. Their ability to expedite the deal process increases the odds of getting a deal done while also saving sellers extensive amounts of time and money.
While 2020 has wreaked havoc on many companies in the trucking industry, it has allowed many companies to have record years. We are speaking with many companies who have had a great year and are now looking to capitalize on new shipper relationships and increased cash on hand. Making an acquisition will allow them to better serve new customers and provide them with the drivers they need to service new accounts. More than ever, companies are limited in their ability to grow organically by their ability to source new drivers. This dynamic coupled with a year of strong financial success has further increased buyer activity.
When shutdowns began in March, M&A activity in most industries across the country came to a screeching halt. We were fortunate to continue forward with the deals we had engaged because trucking was one of the few industries where operations weren’t drastically affected. This reality brought with it a surge of new interest from outside investors to the industry. Private equities and family offices that traditionally had not been interested in trucking deals began looking at trucking for the first time because the money they had set aside for other deals could not be deployed and the stability of the trucking industry in the midst of disruption elsewhere was more attractive than ever. While many industries across the country have returned to business as quasi-usual, much of the new financial investor interest has remained.
FreightWaves recently released an article discussing the shortage of sellers currently entering the market. I believe there are several reasons to attribute this to, but fear of the election, elevated spot prices, and post-Covid recovery seem to be the most common reasons why sellers are delaying their exit. I will expand on this in my 5th reason, and while I’m no economist, low supply coupled with high demand typically equals a strong market for sellers. Buyers simply do not have as many opportunities to look at right now which makes strong companies entering the market more attractive than they were this time last year. Buyers who have money to deploy will be looking to capitalize going into to 2021 and the sellers who enter the market first stand a much better chance of getting a deal done before buyer capital is deployed elsewhere.
After years of work in the transportation industry, this is one truth that has not changed. Sellers who decide to exit while their company is healthy and profitable have a much higher rate of success and many more options than those who enter the market on a downturn. That is not to say entering the market on a downturn makes a transaction impossible, but it does add a hurdle for buyers, and in the M&A process, our goal is to minimize the amount of hurdles a buyer needs to cross to get a deal done. All too often, we see sellers contemplate selling only to decide to stick it out a “little while longer” because they are making good money. Inevitably, the market shifts or a key client changes the way they do business, and the seller comes back to us worse off than where they were, and they miss their chance to capitalize on their previous success. Entering the market while healthy, growing, and profitable allows sellers to maximize their options and take the deal that is right for them rather than the deal they need. While the decision to exit while everything is running smoothly can be difficult to make, we highly recommend potential sellers take it into consideration. As 2020 has shown us, no one knows what is around the next corner.
Tenney Group is a transportation specialized M&A advisory firm with 47 years of experience. We are 100% focused to the transportation industry, and at the time of this publication, we represent sellers in dry van, liquid bulk, refrigerated, flatbed, final mile, dry bulk and freight brokerage, with multiple deals scheduled to close before the year ends. These deals provide us with a real-time view of current buyer activity and have provided the insight I have used to inform the list above. Thank you for taking the time to read this article. If you would like additional clarity around any of these topics, we would be more than happy to discuss them in further detail. Whether you plan to exit soon or 20 years from now, our goal in every conversation is for you to walk away more informed and better equipped to make the decision that is in your best interest.
By: Davis Looney, Tenney Group- Strategic Advisor
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