It’s often said that value is determined by what buyers will pay for a business in today’s market. But different buyers value companies in different ways. In general, business buyers fall into two categories: financial and strategic. By far the largest group, financial buyers are mainly motivated by cash flow. These individuals or investment groups are likely to value a company based on past and present – but not future – profits.
Strategic buyers, on the other hand, consider value beyond what meets the eye. Whether they are a competing trucking business looking to grow or a larger company hoping to cut costs by handling their own transportation, strategic buyers may be able and willing to pay a higher price when buying a trucking company for sale.
1. Lower Costs
When a financial buyer acquires a company, operating costs probably won’t change unless the new owner makes sweeping structural changes. But because strategic buyers typically own other businesses, they may be able to enjoy immediate cost rewards. Let’s say a strategic buyer already has an efficient administrative team or technology platform. By consolidating existing and new infrastructures, costs can often be reduced – paving the way for higher profits. In addition, a larger company created by the merging or acquisition of a trucking company for sale will often experience economies of scale from supplier discounts, specialization, and access to new markets.
2. Diversified Customers
It takes time and effort to establish a presence in a new market. Customers whose needs are already being met by a competitor must be convinced, one by one, to try a new trucking service. But growth through acquisition allows a company’s customer base to be expanded instantly. When two competitors merge, the competition is taken out of the picture completely. Additional customers and suppliers may be attracted by the acquired firm’s established reputation and location. Increased revenue can also be achieved through cross-selling. If a transportation business that hauls non-perishable goods acquires a refrigerated trucking company, it may be able to sell twice as many services to the same customers while also capturing brand new clients.
3. Reduced Risk
While buying a trucking company (or any business) always comes with risk, strategic acquisitions can also protect against risk. By acquiring or merging with a company that offers diversification, transportation businesses may be able to reduce customer concentration and insulate against business cycle fluctuations. It may also be possible to smooth out sales trends. For example, a company that provides most of its services in the summer may benefit by purchasing a carrier that caters to a larger number of customers in the winter. If a business is profitable but unpredictable, its owner may be interested in trucking acquisitions of companies with more stable operations.
By identifying and nurturing facets of a business that could provide strategic benefits, business owners may be able to achieve a higher price when it’s time to put their truck business for sale.