You’ve spent many years building your company into a successful warehousing and logistics provider. You’ve ridden out the boom and bust cycles transportation and logistics industry. Now what?
Maybe you’re ready to retire, or your health isn’t what it used to be. Perhaps you just want to spend more time out fishing, or with your grandkids, or traveling. Maybe you just want to trade in that old challenge for a new one.
Whatever the reason—you’ve been thinking about selling your company.
Legacy vs. Investment
If you’re considering selling your warehousing and logistics firm but you aren’t sure if it’s the right move, ask yourself: have I built a legacy or an investment? How you view what you have built may influence your decision.
Maintaining Your Legacy
As you consider divesting yourself of the business, think about what you would like to happen next. Who should lead the company once you have moved on? For many family-owned business leaders, this is a simple question with a simple answer.
If you have a family member that’s been groomed to take over upon your retirement, you might be in luck. However, it’s important that you make sure taking over the business is what they want. All too often family business owners operate on the assumption that a child or other family member will want the business when they are gone. Once it is time to pass on the business, the successor may take on the job out of duty rather than desire—or worse, may refuse the role altogether.
If the next generation of your family wants to go all-in on the business, that’s perfect. Your legacy is secure. Time to buy a boat and plan out your retirement.
If not, however, that doesn’t mean you are out of options. Look at the other leaders in the business—your executives, department heads, and managers—and ask the following questions:
- Who would make the easiest transition for your employees and customers?
- Who do you trust to take over the business and run it successfully?
- Who could secure the proper financing to purchase the company from you?
- Who would be interested in stepping up to lead the company?
If someone in your employ is the answer to all these questions, you may have found your successor. In this scenario, you aren’t bequeathing the bulk of your business to a family member, so you retain various options. For example, you could sell the operating company, but retain the real estate and lease it to them to ensure a continued flow of steady income.
Cashing in on Your Investment
If you don’t have a family member or trusted employee willing to carry on in your stead while you move on to your next challenge, you have a few options:
- Shut down the operation and liquidate any assets. If you don’t feel compelled to keep operating, closing shop is always an option. Before doing this, consider any contracts that must be broken, severance packages that must be paid, and other expenditures or termination costs that may arise. Simply shutting down is not always the most cost-effective option.
- Sell the company and its assets to another 3PL. If the goal is to pad your bank account and move on, selling to a competitor or another 3PL looking to break into your target market is likely your best move. If you’re lucky, you may even be able to find a 3PL in your lane that shares your values and goals for the company.
- Continue running the company yourself. Some people simply don’t want to retire. Don’t feel pressured to sell your business or retire simply because of your age. If your company is profitable, you still have the ability, and you enjoy running it, then maybe the retirement life isn’t for you—and that’s okay.
Valuations: How Much is My Company Worth?
Should you choose to sell, you’ll need to put a price tag on your company. Understanding the actual worth of your warehousing and logistics company will help you to target potential buyers and assess the fairness of offers. Valuations are not standard—some sellers will give away the operating company as a condition of the asset sale, while at the other end of the spectrum the assets of the company may only be a small percentage of its total value.
The fact of the matter is that your company may seem worth more to you than it will to everyone else. A true value can be determined by assessing valuations specific to your operation. These valuations may include factors such as:
The real estate value of your company can vary broadly. The bulk of the value may be in your real estate, or the real estate itself may only be a small fraction of your company’s total price tag. Consider your location:
- Are you in a remote area or near a primary, secondary, or tertiary market? The old adage about the three most important aspects of real estate being location, location and location still holds.
- Size of your company or portfolio? Bigger is generally better as transaction costs can be spread out.
- What type of labor force is available to a new buyer?
- Is your property in an ideal location for a buyer to attract new business?
- Is your real estate located in a tax-friendly area?
- What transportation modes can be accessed from your property?
- How close is the nearest primary transportation lane?
- Vacancy rates of similar properties in the market
Exploring these factors will help you to determine a fair value for your real estate.
Beyond real estate, consider the value of your other assets. Be honest with yourself and ask what condition your PP&E is in. Have you been deferring investments in new equipment and building maintenance, or were you committed to running a state-of-the-art operation?
Consider the following:
- Roofs Check out your building roofing systems and make sure they are in good repair.
- Lighting Are you upgraded to energy efficient LED or do flickering sodium vapor lights still grace your warehouse aisles?
- Fleet Do you have your own trucks? If so, how new are they? In what state of repair?
- Equipment Did you keep putting off those new dock levelers until next year? What does your warehouse racking system look like? Do you have older forklifts or newer, more efficient hybrid lift trucks?
If your facilities or equipment are out of date or in a state of disrepair, this doesn’t just lower the value of your business—it impacts the ability of potential buyers to get financing approved. The financer will send someone to evaluate all the above and more before granting a loan to any prospective buyer, even if you sell to an existing employee or family member.
How sticky are your customers? If you have numerous of long-term contracts, that gives increased value to your company. If your business deals largely in short-term contracts or one-off deals, this will reduce the value of the operating entity significantly.
Exceptions might include:
- Steady repeat business from local companies
- Niche services and/or capabilities not offered elsewhere in the surrounding geographic area
Have you been riding on existing relationships or do you have an active program in place to drive new business? If you can demonstrate and tried and true method for acquiring steady business, this can help to improve the value of your company.
One hint, make sure that you have clauses in your customer agreements that allows for them to be transferred.
Selling to an Outside Party
If you end up taking offers from interested outside buyers, you’ll want to vet them carefully to make sure they are the right fit for your company and your needs. There are a variety of tangible and intangible areas you can investigate to see if a buyer is the right one.
Tangible areas to investigate may include:
- Some companies are simply too large or too weighed down by red tape to move quickly in acquisitions. If you want the process to move at your pace instead of theirs, incorporate deadlines as a condition of sale.
- Many of the large organizations that run around scooping up smaller companies like to throw deals at the wall and see what sticks. Make sure your buyer follows through. Check that they have a solid acquisition history rather than a reputation for entering into agreements that they back out of.
- Does the buyer have the resources to purchase your business? If so, they should be able to provide proof of their support from investors or financiers.
Your business doesn’t exist in a silo. It’s likely that it has had a profound impact on the local area. When vetting buyers, consider the intangible impact of your business on your workforce and the surrounding community. Examine the company’s reputation and their acquisition history to see what they will do once the purchase is complete.
- If you have a business ready for sale, chances are good that you’ve spent a long time building up a dedicated, talented workforce that relies on your company for their livelihood. You will want to make sure your workers won’t be treated poorly once you are no longer involved with the company.
- Will the buyer invest in the future of your business and help it grow or will they break it down and sell it for pieces? Keep in mind that any new owner will trim fat and make organizational changes, but you may wish to ensure that the new leadership won’t destroy what you’ve created.
- Sellers in smaller communities may want to consider how new ownership will impact the city or town they operate in. Do you sponsor local Little League teams? Do you provide resources for local veterans or other community groups? It’s important for the community at large that you choose a buyer who shares your values rather than a large corporate monolith that doesn’t care about community outreach.
How the sale is structured can also have a significant impact on the valuation, tax implications and the time it takes to close the transaction.
- Selling only the real estate, only the operating company, or both. It is generally most attractive to a buyer to purchase all of the assets including real estate, equipment, and intellectual property is often the cleanest.
- If you wish to maintain ownership/equity in some portion of the business, whether that it is the operating company or the real estate can cause a lower valuation. Additionally, the buyer is going to what a pre-negotiated arrangement for them to eventually assume 100% of the equity.
- What is the source of financing? Is it a “cash purchase”, financed by a third-party or seller provided financing or guarantees?
- Environmental contingencies can have a significant impact on getting a deal done. Make sure that any environmental issues are resolved prior to putting your company up for sale, including the required governmental sign-off’s as this will speed up the closing. If you fail to disclose issues and they are revealed during the due diligence period, the deal could be significantly delayed or even called off.
- If you, or the acquiring party require a Section 1031 exchange, allow for extra time for property identification for the other side of the transaction.
- Due diligence requirements – Your willingness to be open with the purchaser can oftentimes work in your favor. The more assumption that the acquirer has to make, the lower the valuation.
- If either party puts lots of conditions on the sale, this can be a red flag. If it is you as the seller that is doing so, are you really ready to sell? If the buyer, are they really serious about purchasing your business? Don’t mistake extensive up-front information requests from the buyer as a warning. A serious acquirer will want significant amounts of information. However, if the buyer drip-feeds you requests this may mean they are an inexperienced purchaser or they need to drag out the deal, neither is good.
- What is the structure of the selling and acquiring entities? If trusts and unusual financing vehicles are involved that require numerous approvals/sign-offs, this may take additional time to bring a deal to a close.
Why Phoenix Logistics and Phoenix Investors?
Combined, Phoenix Logistics and Phoenix Investors have a long history of making deals happen that benefit logistics and warehousing companies. We make acquisitions with the aim of improving underappreciated industrial assets, improving communities, and boosting local economies.
With Phoenix, sellers don’t need to worry about their businesses after the sale. We improve every acquisition through ongoing investment, remain active in the communities where acquired companies are located, and provide a positive working environment for your employees.
We can make deals happen as quickly as you need. For more information about selling your logistics and warehousing company to Phoenix Logistics and Phoenix Investors, please contact us.