How much is your fleet worth? You may have heard about multiples of EBITDA. However, multiples can be quite broad, even in the trucking industry. It all depends upon the size of the fleet, the buyer, the location, specialized operations and other factors.
Despite the M&A industry’s obsession with EBITDA multiples, the numbers are really nothing more than a way to describe how much the marketplace thinks certain companies in certain industries are worth at a specific moment in time.
Then what is valuation actually based on?
To determine the real fleet value of your fleet you have to get back to basics.
Three things really determine the value of your fleet:
- Earnings. At the most basic level, the more money your fleet makes, the more it’s worth. Therefore, the best way to get more for your fleet is to grow the operations so it earns more. And, in addition to increasing your book value, larger companies sell for higher multiples than smaller companies because their higher growth opens up a larger and more sophisticated market of potential buyers.
- Quality of Earnings. When a fleet is sold at any level the buyer is almost always looking for a return on their investment, so they want to buy fleets that are growing and have stable earnings. The more stable and predictable your earnings are, the more you’re worth.This seems like a no-brainer, but fleet owners often get distracted by chasing after one new and exciting “next best thing” after another, and forget all about the attractiveness of a smooth upwards earnings trajectory.You also need to eliminate risk factors.If 80% of your business comes from one customer, that’s not good.If your fleet is getting older and has not adopted new technology, that’s not good. Other risk factors may include: potential environmental or safety regulations that could impact operations, an aging workforce, limits to your potential customer base – the list goes on. Not all profits are created equal.This is why basing company valuations on EBITDA multiples or a purely financial analysis can be so misleading.
- Competition between buyers. There will only be a certain number of entities that have the ability to buy your fleet and the desire to do so. When it comes time to sell, don’t just go to the guy down the road. Identify as many potential buyers as possible and reach out to all of them. Forcing buyers to compete increases the amount they’re willing to pay, as the “opportunity for gain” they initially saw turns to a “fear of loss” that someone else might end up with your fleet instead of them. Remember your Economics 101 class: the only true way to determine a product’s worth is to see what a willing buyer will pay in the free market. Your fleet is worth whatever a buyer is willing to pay.
Savvy entrepreneurs use these three measurements, long before it’s time to sell, to maximize their fleet’s value.
Bigger is better, so keep growing your operations. Predictable, steady growth is the most attractive and “swinging for the fence” or one-time unpredictable events are not very valuable.
Finally, when it does come time to sell, make sure that you or your investment banker markets the company to a large number of qualified buyers, so that the competition in the marketplace will drive your company’s value to its highest peak.