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BUSINESS ACQUISITION CASE STUDY: Clear as Mud

Guest post by: Jeremy Furtick

Article Overview: How a Different Point of View Helped Buyers See the Light

BUSINESS ACQUISITION CASE STUDY: Clear as Mud

The subject business is a FedEx Ground line haul contracting operation that has been in business for more than a decade, running five trucks over the road out of the FedEx hub near Dallas. The current owner purchased the business a few years ago from the founders and has grown the bottom line significantly by implementing more efficiencies and simply "managing" the business rather than owner-operating it.

Value Drivers

• These FedEx Ground line haul contracts are very difficult to get at any hub in the nation ... in fact, no new contracts were being offered in Dallas at the time of the sale and in the 18 months prior to that
• The business model is very simple ... the contractor provides the trucks and the drivers, while FedEx provides the trailers and the routes - you simply hook your truck up to the assigned trailer and drive it to the assigned hub somewhere in the US, then pick up a trailer there and came back to Dallas
• Cash flow was strong and had been improving since the seller had taken over the company
• As far as financial documentation was concerned, FedEx provides weekly settlement statements that detail revenue earned and expenses deducted down to the penny ... so verification of financial records was simple

The Problem

• Locating qualified and interested buyers was not difficult ... in fact, over a six-month period more than 75 buyers reviewed the listing and a total of three offers were secured, two of which were accepted only to be cancelled in due diligence
• We had never experienced a situation like this before - typically it's easy to put your finger on why a business is either struggling to generate interest or difficult to get under contract, but in this case we didn't have either of those problems ... we just could not get buyers to stay comfortable with the business once it was under contract
• What we determined was this business that we perceived to be so "simple" was actually very complicated for people looking at the company for the first time

Our Solution

• Traditional P&Ls didn't tell the whole story for this business, and the FedEx Ground settlement statements for one year were 250 pages thick ... so we developed a customized report specifically for this business that laid out the weekly revenue, associated payroll, expenses that were automatically deducted by FedEx as well as other expenses the seller incurred operating this company
• This report eliminated the bulk of what buyers had been reviewing, while also showing revenue vs. expenses on a weekly, monthly and annual basis in a very simple format

Results

After developing this customized cash flow report for the business we received 12 qualified offers within two weeks. The seller actually had the luxury of interviewing the three buyers he felt were the most qualified and chose the one he felt would be the best fit for the business, as well as the easiest to work with. In the end, the buyer who purchased the business had actually been looking at other FedEx Ground opportunities around the country - he cited "the ease of understanding the financials" as the reason he bought this particular operation.

The Takeaway

Business owners, as well as their representatives, sometimes get blinded by their understanding of the intricacies of their business operations. They expect potential buyers to operate under that same level of understanding and clarity, sometimes to the ultimate detriment of their business sale. It's important to be mindful of the fact that as a business owner you are the expert when it comes to your company and no one else has that level of understanding. Taking extra care to ensure the uniqueness and complexity of your operation is transparent to potential buyers can be the difference between a successful transaction and a frustrating failure.

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Article Tags: business acquisition, business broker, business sale, business transaction, FedEx, mergers and acquisitions
Referred by: http://www.hbgadvisors.com



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