Getting fired from Ryder Trucks in 1984 ended up being the best thing to happen to Andy (not his real name). Truck fleet management was all he knew, so he had no choice but to go into business for himself. Fast forward 30 years, Andy was ready to sell the business since both of his children were interested in practicing medicine, not running a complicated 35-state network of tractor trailers.
I advised Andy the most likely buyer would be a private equity firm that was already invested in transportation management. Our research found six firms that might be interested, and after talking with each of those six, we identified three that had a serious interest. The time was nearing for Andy to meet with each of the three firms and make the case why his company deserved their investment.
“What do I say, what do they need to hear?” he asked a couple days before our first meeting. I decided the best way to prepare Andy for the meetings would be to explain how private equity looks at potential investment opportunities, so I began to write on the whiteboard in Andy’s office……
Growing revenue while improving margins
Andy’s business was growing about 4% per year, but more impressively, as he grew he got incrementally more profitable because he was leveraging his communications infrastructure. A financial buyer (e.g. private equity) loves this kind of business model.
A diverse customer base
Financial buyers do not like surprises after they buy a business. A diverse customer base is perceived to be a hedge against an unexpected post-closing drop in revenue. I asked Andy to list his top 30 customers and the amount of revenue for each over the past three years. He had no single customer that represented more than 14% of revenue; his top seven customers combined represented only 23% of his total revenue. The point being, Andy had a diverse revenue base, not overly dependent on a single or small number of customers.
An articulate plan for growth
The last thing I explained to Andy was to caution him that saying his business had a “bright future” was a waste of breath. Sophisticated financial buyers don’t want enthusiasm, they want a plan and that plan needs to be more specific that just more marketing dollars. Though Andy’s business had a nice stable 4% growth trajectory, he knew he could increase revenue at least 10% per year by adding two salespeople in the Northwest. Andy knew the profile of his customer and he knew that that customer could only be sold through face-to-face sales contact. Seeing this opportunity, but not having the time or resources to go after it, had frustrated Andy but together we developed a specific plan to discuss with the potential buyers. The precision by which he explained this growth plan, and the reasoning behind it, reinforced the point that the business had runway for more growth.
I explained to Andy that he’d get a lot of other questions from the private equity firms coming to evaluate his business. But, if he could give reasonable and logical explanations for the above three factors, we’d be well on our way toward completing a transaction consistent with his expectations. I’m happy to report that one of those three firms ended up being the buyer and today life is good for everyone involved, including the new salespeople in the upper northwest.
Tennessee Valley Group
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