Dawg On-It Trucking Pawedcast

Mergers and Acquisitions With Peter, of Left Lane Associates

December 11, 2020 Chris Harris, The Safety Dawg Season 1 Episode 43
Dawg On-It Trucking Pawedcast
Mergers and Acquisitions With Peter, of Left Lane Associates
Chapters
Dawg On-It Trucking Pawedcast
Mergers and Acquisitions With Peter, of Left Lane Associates
Dec 11, 2020 Season 1 Episode 43
Chris Harris, The Safety Dawg
Transcript

And walk them to the Dawg On-It Trucking Pawedcast. I'm your host, Chris Harris. And today we have Mr. Peter with us, Mr. Peter Stefanovich. Did I say that close to being correct? Peter, You did. Thanks Chris. Pleasure to be on. Hey, it's awesome. Peter, you work for left Wayne associates. What the heck is, I mean, I understand the reference to the left lane. You're always going fast, but what is left lane associates? Yeah, The left lane associates is a supply chain, mergers and acquisition investment bank. So our job is working with both buyers and sellers in the transportation, logistics, warehousing supply chain sector in North America. Either sell their business when their time has come to exit or buy a business. When they're looking through growth strategies for acquisitions and left lane associates, that the name left lane comes from my business partner. Mike McCarran came up with the idea of passing. The left lane is you tend to pass in the left lane. So for us, especially the reference to trucking, which where Mike built his business with MSM, transport passing in the left lane is something that for us, we always help our clients pass the competition from either growth strategies or when selling their business. So we're able to help them Well, see ya. And you're talking to a safety guy and to me left lane is passing, which means that the fast lane, you know, and that's to a safety guy, the more dangerous lane. Cause I want you to stay to the right, but I understand your, your metaphor. Absolutely. You said it's, it's you and McCarren. Yeah, So it's Mike and myself and we've got another eight employees and all a five on the deal side, three in-house researchers and two support staff. And our business has grown from just Mike and myself all the way to where we are. Now. We work on transactions anywhere from $1 million, all the way up to $250 million. We, again, we work in five areas, we've got the asset-based trucking. So that's the reefer drive in courier bulk, anything in the asset based side, the non-asset based side, that's the three PL four PL customs broker freight forwarder, freight brokers. A third area is warehousing distribution companies. The pick and pack co-pack e-comm fulfillment businesses. The fourth is truck and trailer leasing businesses. And the fifth and final area is transportation data and technology companies. So that's the TMS WMS systems. Let's see. That's cool. And I didn't know that left lane. I mean, I, I don't know, like McCarren, well, we are kind of associates. I've met him at several, you know, business functions and stuff. And I know his background from his own. How do you know Mike? So Mike and I met in 2012 13, I joined wheel's group, which is the business that actually purchased MSM. And my office was right beside Mike. So Mae kind of became friends and Mike actually became a mentor to me in the business. I was working in sales and running several operations teams. And I went to Mike for a lot of advice and we stock up, struck up a good friendship and he became a mentor to me in the space. And we got to know each other quite well to the point when we decided after wheels group sold to read it, that we would look at starting something together. There was a big gap from people, understanding transportation, logistics and the supply chain from the investment bank side and from the M and a advisory side of the mergers and acquisition advisory side, because people had never spent time in it. So the differentiating factor in the force multiplier for us was we had spent a lot of time in the transportation logistics supply chain sector. So we built the business based off of our knowledge in the space that we could help other equal sellers or buyers assist them in growth or selling their businesses in only the supply chain logistics space. See, and that's really cool. I didn't know. I mean, I've never thought about it. I assumed always that businesses have to be sold from time to time for whatever reason, but I've never really thought about how does it all happen? How does it get put together? You know, what are the steps in if I owned a trucking company and I wanted to sell my business, what do I do? How do I go about it? Here's well, the first thing is to, before you decide to sell your business, you want to have internal conversations with your friends or family members that are related to the business or ownership or shareholders of the business. Want to make sure everybody's on the same page first to make sure that now is a good time. Next piece is to reach out to somebody like us and start talking and engaging the process. Now for us, if you're a seller and you're looking to sell your business, the first thing we'd like to get done is get a proper valuation done. But that's by a proper valuator that we work with. Who's got a CBV, that's a certification for accredited business, valuation experts. Getting that helps get you an idea of where your benchmark value is understanding that helps make sure that the value of business is exactly what you think it is or where it should be. And from there we're able to then take that information, use that to help presumably buyers look at your business and help sell your business. So once the evaluation is completed, then we go back with the sellers again, make sure we're all on the same page. We then start the process of putting together marketing materials, putting together a confidential information memorandum. It's basically a 25 30 page book that outlines your business, outlines your assets, that you have their power units, trailers, what type outlines, the geographic locations, what type of commodities you move and outlines your corporate structure and the value add you could provide to a buyer if somebody acquired you. So our job is to put together this, this really intrinsic book for people to look at it for the first time and get an understanding of your business quickly and get them to jump on board with whether they want to purchase the business or decide to jump off the ship and not decide to move on to something different. So our job is basically display your business in the best light, get all the information, ready, populate that information. Run the process, have various discussions with potential buyers, negotiate at an expression of interest level, then negotiate to a letter of intent level. And once we're able to get to there, then help guide along the due diligence process, all the way to the purchase and sell agreement, which will be the actual time when your business is closed. And when that happens close from a perspective of selling the business, not from closing the business altogether, but from selling the business. And once that's completed, then the transition stage starts and the business goes and starts working with a presumed buyer. How long does this whole thing take? Because I mean, I met you and I'm at a client of mine. You're in to start the process. I believe now, obviously we can't mention the client because I don't believe that has been closed or anything. However, how long does it take typically or on average to sell a trucking business? Because I gotta believe it's God, it's gotta be kinda like a house in some ways where you're on the market for a period of time. And then you, you reach an agreement and then there's gotta be another due diligence phase I would imagine. And then you actually have a closing date is deciding anything close to reality. Similar. I usually, when people bring up the real estate examples to get a little bit, it's the closest thing to working in emerges and acquisitions, but it's vastly different, a lot more expansive and a lot more work involved in it. Obviously when you're selling a business, let's say usually a trucking company you're selling the power units, the trailers, the customer lists, your employees effectively your processes and the land, presumably in some deals. So it's a lot more complex than a real estate deal. But the concept I get where you're coming from, it generally takes anywhere from an a minimum six months, all the way up to 18 months to sell your transportation business. So that's why it's absolutely imperative to think about selling your business well, before you have to sell your business. And we often talk about actually my partner, Mike coined dreaded DS death, divorce disease, delinquent partner, and done. So there's five DS that might back Mike and us talk about. And when you get to those five DS, you're actually lose the ability to control your own destiny. So it's better to get ahead of those things and control your destiny to get the maximum value out of your business. And I know the co or at least, I don't know, but I believe the client that you and I both mutually know is not involved in the DS yet. There's another D that you didn't include in there. And that one would be desire. You know, our mutual client has the desire to sell and to slow down because they've been in the business for God. I don't want to say how long they'd been in the business, but I know that I've known the people for more than 20 years or about 20 years. So it's been a long time. Yeah. Yeah. It's, it's, you know, it's a lot of people get to the point and one of the DS has done where they say, look, I just want to be done with the industry that we're in and it's not because they don't like it. Obviously it built a family lifestyle for them and help them create value for their employees, employment, et cetera. So most people after you get to a certain point, you just want to move on to something else, maybe do work in charitable organizations or just even retire and go golf enjoyed, maybe travel, not right now with COVID, but travel eventually soon. And you know, to, to get ahead of that stuff, you need to think ahead and, and realize that it will take, you know, six to 18 months to get things done. And that includes starting engagement, starting to the valuation OS, putting together the confidential information, memorandum, the marketing materials, going out to market negotiating, putting together an expression of interest. Then the letter of intent then due diligence itself takes quickest as 60, 60 days. Usually it's 90 to 120 days of just due diligence. So it's, it's, it takes awhile. So it's important to make sure when anybody, especially anybody that watches this understand that's important to plan well in advance. Well, yeah. And you know, you're saying due diligence takes really 90 to 120 days what who's involved in the due diligence. Yeah, absolutely. So the due diligence involves if you have an advisor or somebody like us, be us coordinating with the buyer side on their team, generally are accounting personnel that they've hired or, and, or their, their legal teams. So the due diligence involves various operational information. That's needed legal information and accounting information that's needed. So there'll be multiple different parties on both sides, working on getting all that information put together and answering any questions that are outstanding regarding any of the materials that have been uploaded to a virtual data room. So a lot of work you've got the lawyers and the accountants involved. And I imagine it's just confirming that everything that seller has said or demonstrated is all true because once you've purchased it, I would imagine it's buyer beware. I, again, I've never bought a, a trucking company, so I don't know, but I would imagine at least part of it is buyer beware. Correct? Exactly. Like the purpose of due diligence is to verify all the information that was presented beforehand is accurate. And the job of, of a good investment banker or advisor like us is to make sure that that information is properly vetted before we actually take on a client and make sure that that information is accurate because we also are very protective of our brand and reputation. And we want to make sure when we're going out to, you know, big companies pick buys and Mullen TFI, titanium, you know, Canada cartage, any of those big guys that were presenting accurate information. So when they're looking at our client that they know it's accurate in that way, that could speed along the due diligence process. But if, if information is, is incorrectly displayed or inaccurate, then it reflects badly on everybody and that will kill a deal. So it's make the main idea with all this that I'm saying, is anybody looking at selling the businesses is to make sure to be open and honest about the business, especially with your advisor or your investment banker. So that way, when it gets time to go out to market, that there's no skeletons in the closet at that time, and anybody who's looking at the business won't have any issues of anything that's displayed in front of them. Yeah. I gotta imagine it's, it's gotta be tough to, to sell because in your, in the trucking business, a lot of the sales are family owned operations, and it's something, you know, a typical trucking company starts with one or two. You nurture it, you baby, it, you bring it along and now you get it up to, let's say a hundred trucks. And that took him maybe 20 years. And now it's time to sell. It's like selling a family member, selling hay, a baby, really? How do you get around? I know that if I did all that work and the blood, sweat, and tears that it takes to be in a trucking company, I might have an inflated value in my head as to what my baby is worth. How do you coach your clients to bring them down? In some cases I got to imagine down to reality, is that a fair statement? Do some people have to sometimes have an inflated value for their company? I would say most people do. So I think it's, you know, exactly the example you gave. Everyone thinks that their kid's the best looking smartest kid, you know, best at sports and everything else. But, you know, from a business perspective, it's no different. And when your business that you've grown built, it's provided for your family, your friends, employees, you have a, an affinity to that business and your affinity is always going to be greater than anybody else's. So that's why it's important to realize that it's good to get a third party. Somebody like us to work with you and understand the value of the business. That's why are important first step in any business that we decide to help sell is get evaluation done. So that way there's a level set of all parties to understand that this is the value. And if people don't agree with our expertise and our, our approach to being able to take their business and sell it at the correct amount, then a deal will never get completed. So our job is to make sure we properly vet our clients as much as they vet us. And as to make sure that we're realists, which we are versus being idealists. And, you know, the job is to get the deal closed and to complete a transaction. But before that happens, the selling party has to be comfortable with the value. If they're not our response back is then take some more time, build it up to the value that you wish it to become based on these indicators. And let's circle back in a year, two years, three years, however long it might be. If you're able to achieve that, those metrics, then it'll be able to sell at X value. That's that's neat. I mean, I've got a question for you that isn't directly related, but to kind of this, my girlfriend owns her own business. It's not a trucking business. And one day it will be up for sale. How do you go about evaluating a business and putting a price on it? Yeah. So the best way of understanding the business value, it's looking through a market, multiple approach, and that's what we commonly use in, in the mergers and acquisition worlds for supply chain. So we look at the, the value of the business from a financial sense and get an idea of what their EBITDA figure is. That's the earnings before interest tax, depreciation and amortization. So it's, it's, it's getting that number, figuring out what normalizations as any business owner, like your example of your girlfriend. She might put stuff through the business. It's not tell the CRA, but it's it. You might get a couple of meals you put through the business or have your personal vehicle through the business. It's very common or else, why would anybody be an entrepreneur? If you didn't have any benefits from doing anything, it's a huge amount of risk and you got to have some return back. And I think that's important part of being an entrepreneur and we need more entrepreneurs in this country, by the way. So the important piece about understanding how the business is valued is once you figure out the mathematical approach to finding out what that normalized EBITDA number is, then from there, it's using expertise of people that understand the marketplace like ourselves, to know where multiples, so that multiple of that EBITDA number lie based on your Goodwill, your brand, the lanes you might run, the clients who might have so that all into we're, a multiple of that EBITDA gets placed. So that could be, you know, one, two, three, four, five, six times, and using that as a good indicator. So there's quantitative analysis that's built into, along with qualitative, and it's a merging of the two that allow us to get to the correct valuation. And because most businesses in, in transportation are privately held. It's hard to compare public numbers in public figures. In any information that you might read online is generally not accurate unless it's actually a publicly traded company. So from that standpoint, having a Nate knowledge and having a good understanding of the business is important, or if there's sort of, the industry is absolutely important to understand where the multiples you'll be able to get when you sell. Yeah. Cause I was thinking how many publicly traded trucking companies are there in Canada? Well, you've got TFI, you've got Mullen. You've got titanium on the Canadian side, U S office, the big ones like JB hunt are massive there too. So I'll use that as an example, but there's, there's quite a few down there as well. Yeah. But up here in Canada, like a lot of the big ones, a bison they're private. Private. Yeah, absolutely. Yeah. Th th the only three that come to mind in a trucking space are titanium, Mullen and TFI. Yup. So I can compare that to how many trucking companies there are out there. That's less than one 10th of 1%. Yeah. It's huge. They're typically family run companies. I mean, a bison. Yeah. I was going to say is, is a family run company is probably grown out of that, but I believe the founder is still or not the founder, but the, the family is still involved of the founder adviser. Yeah, absolutely do work with Rob Penn are there. So it's a, it's, it's grown exponentially buys and it's been quite a big success stories, especially coming out of the Prairie's it's been, you know, quite a quite phenomenal store for them, their growth. Yep. Now you mentioned one thing that Goodwill, how in the trucking industry, like, I guess I got a couple of questions about Goodwill because it is so much Goodwill is kind of pie in the sky a little bit. Then we have the driver Inc model. So how do you evaluate Goodwill? And then I want to talk to you about how does driver Inc affect the, or does it affect the value of the company, but how do you price Goodwill Well is priced in multiple different ways. That's why it's understanding, you know, where, you know, what type of business and break it down for you. Goodwill is a number of different things that could be the type of client, the industry, the clients are in the longevity of the clients, the longevity of your employees. It could also be the geographic location, the type of business. So give you an example of e-comm fulfillment businesses, the Goodwill, those are a lot greater because it's a lot more interesting or sexy right now because of the e-comm fulfillment final mile, everyone using Amazon type of stuff right now. So Goodwill changes based on, you know, a variety of different factors, including the ones that I talked about too. And, you know, certain areas, especially in trucking, if, if certain lanes produce higher values. So that increases your Goodwill. If certain types of transportation have higher Goodwill values, use example of liquid and chemical bulk have higher Goodwill values because the customers are more sticky dealing with hazmat stuff versus dealing with just regular drive. And that not saying anybody could do that, but drive in it's a lot more, it's a lot easier for people to purchase a drive in than it is to that's about 30, $40,000 than it is to buy a, you know, a chemical bulk container that's $250,000 and is safety and government regulated based on certain commodities you ship That's. That's cool. I got to believe that's one of the harder areas that you have to put a price tag on. I mean, have to me equipment, like you said, a dry van they're used, but you know what they're worth kind of, or what they're selling for. So to me, that would be the easy part of the job. Everything else is tougher. Driver ink affect the value of a company. You know, it, it, it can, it, it, the Goodwill of driver, Inc, depending on the perception of the industry, it could have a negative impact on the value of the business. But if a driver in business is being acquired by another driver ranked business, from that perspective, the Goodwill may not downwardly affect that business because the people looking at that are comfortable with that model. Now, again, would you see, you know, as Alan Bernard said, in some of his quarterly meetings that they're not interested in anything with regarding driver Inc. And when you hear that, especially in, in the atmosphere at that, that could have a negative effect on the potential selling of a business that is driver and associated. Okay. So you said Alan Bedard, which company is he? I know it starts with T but TFIs or Alan, but Yeah, I just wanted to make sure that the listeners knew who you were quoting. So a company like that, if they're out there looking for an acquisition, they're not going to be looking at a driver in companies what you're saying. Correct. So for him, it drives the value down. And for others, as you say, if they're comfortable, that's not, not a worry, correct? Yeah. It really depends on, on the perception too, at the time. And if, you know, the CRA starts clamping down more on the driver Inc model, then there'll be more reluctancy to purchase a driver Inc business as well, or whether it's reluctancy or the value gets driven down because of that. So it depends on the perception and the reality at the time, too, if, if more businesses again are being CRA WSAB fractions because of the driver Inc model, then that could negatively impact again, that businesses that, that facilitate that. Yeah, it'll be interested. Interesting going forward, you know, right now we're in the middle of COVID and all levels of government are spending unprecedented amounts of money. I wonder how they're going to attack their deficits after this is all over. Well, it is, it's not a wonder of us attacking the deficit. It's our grandchildren that are going to be attacking it because that's how much spending we're going through right now. And, and maybe their children, you know, but I just wonder if the drive rink model, if that'll be an area that, and this is out of likely out of your expertise, that driver Inc model will be one of the areas of government looks at to say, Hm, you know, the OTA, I think they said, there's a billion dollars of taxes being left on the table. It, it would be interesting. Oh, I like to always assume anyway, that the government could take, get more from taxes. They will. So however, Beth, did they find that they will find it? Yeah. Hey Peter, we're, we're nearing the end. And I don't know, as I said at the beginning, I really don't know anything about mergers and acquisitions. What questions should I have asked you that I haven't? Hmm. Well, I think, you know, the, the, the question that you or anybody looking at selling a business, the best thing to ask is who's experienced in it. And I think that's, you know, for us, not just, you know, for your viewers, getting an understanding, you want to work with somebody just like yourself, that knows a specific niche. You obviously know trucking and safety, and that's your lane. And it's best to work with people that are specialists and understand a specific area rather than working with somebody that's a generalist. So we always recommend working with people that understand that space, not so much a question, just more something that people should always question and ask themselves. So who would you rather work with? Somebody that's a specialist or somebody that's a generalist, especially when it's your, you know, when you're dealing with safety and lives and risks, or when you're dealing with selling your baby from a MNA perspective. So I think those are both extremely important things. Other questions that people should ask when talking to, you know, M and a advisors are looking at selling their business is, you know, how, how often do businesses get bought. And, and that's a question. People don't ask us a lot and it's extremely hard to sell a business difference than selling a real estate piece of property. There's so many variables involved in a business and only one in three businesses sell when they get to a letter of intent stage. So that's basically when due diligence is about to start. So at that point, when you think it's all over, there's still only a 33% success rate of closing. So it's extremely hard to sell a business. And I think people need to realize that, you know, if you have an opportunity and you have, you know, this, you know, somebody to help you navigate around that opportunity, get a extremely good op deal from it from a value perspective. It's good to take advantage of that because that opportunity may never come around. It's not like, you know, getting a new client for trucking business or getting a new warehouse in client, in a warehouse in business buying and selling businesses are extremely hard and difficult, and it doesn't happen often. And there's a lot smaller pool of buyers, and there's a lot more risk involved. So less people are involved in buying businesses than buying a house or anything else. So it's extremely important to realize that when starting this process, That's cool. I ended, of course, we're going to have all of your contact info for the listeners and the viewers. If they want to reach out to you and left lane, all the contact info is in the show notes below Peter. I want him to say thanks because I honestly didn't know anything about mergers and acquisitions, especially when it comes to trucking last word. What would you like to say? I just want to wish everybody, you know, all the best into the hopefully new year of 2021. And if anybody's looking at either exiting through selling their business or growing through acquisitions, we're always there to help. We've got a team of 10 professionals and we'd love to always chat. And again, wish everybody safe, safety and happiness and healthiness throughout this pandemic. And look to see everybody on the other side of this. Once we get the vaccine rollout and we're, we're all set and wish everybody also a happy holidays. Hey, thanks so much Peter, for being on the show, happy holidays, Merry Christmas and all that good stuff. As the listeners may not know what is today, December the it's not on my watch. The fifth, fourth, December the fourth, we recorded this today. So right in the middle of a damn pandemic and looking forward to 2021, hoping it'll not be a repeat. Absolutely. Hopefully not. Well, thank you all the best, Chris, and all the best to everybody listening. Thank you. Take care. I hope you love the show. As much as I did, please leave us a, like a thumbs up a review, a comment, a rating. Thank you so much. And I do really appreciate your time and join us again next week for another exciting interview.