Selling a fleet operation is a complex process. Even if you hire an investment bank to streamline the process, there is a lot of research and due diligence required to produce key documents for the transaction.
There are a several documents potential buyers will receive: The “pitchbook,” financial models used for valuation purposes, and the buyer list generated to market the company. That’s just the tip of the iceberg. There is a lot more data to collect.
Much of the data used in the M&A process comes from online databases that are cross-referenced to help provide reliable insights.
But it all boils down to these three things:
1. Triangulate the best price for your company
Fleet owners want to know what their business is worth. Unlike the real estate industry, where determining home values for tax purposes or loan applications is based on comparable properties, this is rarely possible when selling a business. Every business is unique and private companies are reluctant to disclose financial information after a sale of the business.
Still there are ways to define an optimal price. First, research similar public companies that have been sold recently, because they are required to disclose financial information. Second, use a transaction database to research comparable private company transactions with disclosed financial information. Third, combine this pricing information with historical and projected financials of your business.
Remember, while this pricing data provides a solid basis for valuation, the market drives what potential buyers will pay. For example, we recently sold an oil field services company for approximately 30% more than the data valuation prediction. Why? A strategic buyer needed the technology the seller had developed and was therefore willing to pay a premium for the company. We discovered this buyer as a result of extensive research and analysis of the market.
A seasoned investment bank will leverage its financial experience to interpret the data available and create an effective marketing campaign for your fleet. This campaign should tell a compelling story of the company’s future potential. At the same time, it should create a feeding frenzy by drawing the right set of buyers to the auction table. So while data provides the basis for valuation, it is the marketing campaign to qualified, interested buyers that will drive the final price.
2. Quantify supply and demand
Owners should sell when demand for companies like theirs is high and supply is low. It typically takes 9 to 12 months to sell a middle-market company. Closely monitoring the volume and value of recent M&A transactions is critical to understanding the business cycle, and most important, being able to predict where the M&A market will be in 12 months.
Currently, the demand for quality middle-market companies is extremely high. Investors are sitting on $1.1 trillion in funds that need to be deployed, and they also have easy access to credit. Deals between $50 and $250 million in value have seen EBITDA multiples steadily increase to 6.7X in Q3-2014.
Why is this important? If you own a fleet with an EBITDA of $10 million per year, a one point increase in valuation multiples means your potential fleet value increases by $10 million. However, a decrease in multiple can negatively impact your fleet’s value as well.
While the current upward trend is great for sellers, it will lead to more fleets going to market, significant capital being deployed and an eventual drop in multiples. With the average deal taking 9-12 months, owners should capitalize on the current opportunity to sell, because there are several factors beyond an owner’s control that can change the market rapidly.
3. List the pros and cons of each potential buyer
Complex M&A transactions can be similar to a marriage. Business owners and investors need to find the right partner, or the consequences can be expensive. While price is always important, many owners place a high priority on: the impact the transaction will have upon their employees, how long-term customers will be managed, and the opportunities for future growth the investor brings to the table.
You and your investment banker should list the pros and cons of each potential buyer and determine which ones meet your financial and personal goals. When you have this list, you are better prepared to negotiate with those buyers who should provide the best partnership opportunities.
While M&A transactions are data-driven, you should always remember to look at all aspects of the potential deal to determine the best pathway to M&A success for your fleet.