Acquisitions Anonymous - #1 for business buying, selling and operating - Is It Profitable Owning a Trucking Business? A $4.7M EBITDA Analysis

Episode Date: October 1, 2024

In this episode of Acquisitions Anonymous, hosts Michael Girdley, Bill D’Alessandro, Heather Endresen, and Mills Snell evaluate a nationwide refrigerated and dry freight trucking company with $4.7 million in EBITDA. The discussion touches on the challenges of owning a trucking business in a volatile freight industry, the risks associated with owning 35 trucks, and the pros and cons of doubling fleet size to 60 trucks. They also explore the cyclical nature of the trucking industry and whether selling trucks and focusing on freight booking could increase profitability.Key Points Discussed:• Asset-Heavy vs. Asset-Light: The risks of owning trucks and the benefits of shifting to a more asset-light model.• Cyclical Industry Risks: The impact of the freight market’s cyclicality and how businesses handle booms and busts.• Growth Through Expansion: Why expanding the fleet might not be the best strategy in a saturated market.• Logistics and Dispatch: The role of 24/7 dispatch teams and owner-operators in managing the logistics nightmare of trucking.Thanks to this week’s sponsor:Acquisition Lab and their team have been longtime supporters of the pod. Acquisition Lab exists to help people buy a business and navigate all the complexities of the process, as well as provide a trusted framework, tools, and resources to support you from search to close.If you are serious about buying a business, check out acquisitionlab.com or email the Lab's director Chelsea Wood at [e-mail] and mention us ;)Subscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

So let's be clear about what this is and what this isn't, first of all. So this is not actually a trucking company. But, Bill, it says the company currently owns 35 trucks and 40 trailers. There is a reason banks don't want to finance these kind of companies. Not something that you're going to pick up overnight. The owner, you don't want them leaving in two weeks. All right. All right.

Acquisition Anonymous. Hello, another episode of Acquisitions Anonymous. We don't have 100% here. Hello, ladies and gentlemen, boys and girls. and welcome back to another episode of Acquisitions Anonymous. This is the internet's number one podcast on buying, selling, and operating small businesses. I am one of your hosts, Bill Dallisandro, and we have all three of my other co-hosts today, Heather, Michael, and Mills. And we talk about a trucking company.

They own about 30 reefer trucks, which are refrigerated trucks. And they also partner with 15 owner operators to contract outloads. So they do some kind of brokerage and booking, but also they drive and own their own trucks. The balance sheet on this one is pretty interesting. I wonder if there is a creative financing option, while Heather absolutely is terrified of financing this deal. We also have some fun asides from Michael, as we always do. So I look forward to seeing you guys over on this episode of Acquisitions Anonymous. This episode of Acquisitions Anonymous is sponsored by Acquisition Lab.

Acquisition Lab and their team, they've been longtime supporters of the pod, and they provide a really great service for people who, are looking to acquire a business. So it's created by Walker Dival, who's become a friend, the author of Buy, Then Build, How to Outsmart the Startup Game. So Acquisition Lab is an accelerator with a highly vetted, cohort-based, educational, and support community for people who are serious about buying a business. So a lot of our listeners like you, you tune in every week to our deal reviews, you want to get in on buying a business. You know, you're on this podcast because you're trying to learn how to buy a business. But if you're not quite sure where to start,

Acquisition Lab is a great place to start. So they exist to help people buy a business and to navigate all those complexities of the process, everything you hear us talking about on the show. They provide a proven framework, tools and resources that support you all the way from search to close. They do it. There's a whole bunch of educational material and support. So if you're serious about buying a business, check out AcquisitionLab.com or you can actually email the program director, Chelsea Wood directly. Her email is Chelsea at buy then build.com. All right. I have an Acquisitions Anonymous episode throwback update for you guys from an episode about 100, 100 shows ago. So let me tell you about it.

So, Bill, I don't know if you remember our All-America series where we did some hot dogs, but then we also did a fireworks company located in Tampa. Oh, yeah. And I was that around Fourth of July. Yeah. And I, you know, I was very proud of myself because we finally found an industry that I knew a lot about, having been a CEO in that market for a long time. And so I did an expert call today where some people who are trying to buy that business called me and got me to tell them about the fireworks business. I was like, thank you for your money. Good luck with the deal. Did you talk them into it or did you talk them out of it? I think I gave them a balanced view of it.

You know, I think fireworks for sure do the seasonality and the niche nature of it. It's a business on hard mode compared to some of these other ones. And, you know, we are in, for example, you talk to banks, right? And you try to get a banker to understand the dynamics of the fireworks business. And they're like, wait, you only get paid every six months. Like, their head's just like, puss. So there's a lot of things that are very difficult about the business.

And I just, I think it's fine for them. They just need to know what they're getting into. I think that's just the most important thing. Like, no business is going to be perfect. I think that is what should be one of the taglines of Acquisitions Anonymous is that no business is going to be perfect. Because I think I talked to so many searchers and they've been searching forever. for years.

And I just can't find anything that checks off all my boxes, et cetera. And I tell them, like, you, all small businesses are hard. You need to choose your hard. Like, pick which kind of hard you're willing to deal with, handle, and fix. Because if this business were perfect, it would not be for sale. And if it were perfecting for sale, it would cost 20 times EBITDA, which is out of your strike zone. So you've got to figure out what kind of not okay you're going to accept.

That's a good word. I'm going to speak to the University of South Carolina students tomorrow. about the podcast, and it's kind of an ETA-type discussion. So I'm going to ring very loud on that note. One of my friends used to call it, like, every deal you're going to do is going to have red flags. You just need to make sure you know what the red flags are and you're okay with them. I was like, oh, man, that's really good. I'm going to steal that, use it on a podcast someday.

Yeah. Or you got to actually have a plan to mitigate them. You know, like, we've bought businesses before that had major problems. Like, you know, one of them had its own. contract manufacturing in a house in like rural Texas, the manufacturing equipment was plugged in the dryer outlets in the laundry room and they were pouring it by hand on the kitchen counters. Some people might have thought, I'm running as far away from this as I possibly can, but we bought the business. And I flew down there to Texas and we figured out how to extract

the manufacturing from there. We stood it up in Charlotte, North Carolina in our facility and then we eventually were able to contract it out in time. But it took a couple years. It was not like the cheapest thing in the world, but I baked it into the business plan. And we could do the deal. I think a lot of other people couldn't have done that deal or would have been scared off by it.

Well, speaking of deals, I brought the most perfect deal for us today that is a perfect acquisitions anonymous deal. Heather, you want to know why? Why? Because none of us know anything about this business. So it'll be perfect. So let me read it to you guys.

It is a, it's an axixtual. deal, so it's a $4.7 million EBITA nationwide refrigerated and dry freight trucking company. The summary is, is this is an opportunity for a well-established, full-service trucking company founded in the early 2000s. The company has grown to operate nationwide across all 48 continental states specializing in both refrigerated and dry freight. With a strong emphasis on refrigerated freight, the company has positioned itself for continued growth in this expanding market segment. The key business attributes include a diverse freight mix. They currently transport an average of 60% refrigerated and a 40% dry freight.

They have an expanding fleet. They own 35 trucks and 40 trailers. And the fleet will be soon expanding to 60 trucks with additional refrigerated units. Owner operator opportunities that have the business provide attractive opportunities for owner operators currently managing 15 people who own and operate their own trucks, which will contribute to the growing fleet. They have an experienced team, the company is staffed with an experienced team, including more than 30 drivers and dedicated dispatch team that provides 24-7 customer service. They have shown a strong growth trajectory. They have lots of new equipment with recent and upcoming investments and new trucks and refrailers to enhance operational capacity and efficiency, low customer concentration with a diversified customer base that mitigates risk, and they have lots of growth opportunities, including direct shipper relationships, digital marketing strategies, including Facebook, ads. Why does every listing say digital marketing is the new future? Anyway, addition of sales

employees to drive further acquisition. In terms of financials, the company has grown quickly. In 2020, they did 8.5 million revenue and 1.7 million in EBDA for a 20% EBDA margin. In 2021, they did 11.2 million for 2.6 million in EBDA, so a 23% EBTA margin there, so 32% year-over-year growth. And in 2022, they did 15,000. million in top line revenue for a 34% year-over-year growth for 4.5 million in EBIDA or a 30% margin. The company is trying to find a change of control or sale and they are located in the Midwest. What do we think about this $4.7 million, EBITA nationwide refrigerated and dry freight trucking company?

So let's be clear about what this is and what this isn't, first of all. So this is not actually a trucking company. This is a brokerage, right? or technology company, you know, as they say. So there are not, like, I don't believe this business owns trucks. I don't believe they drive trucks. I don't think they have drivers on staff at all. It says it's a full-service trucking company, though,

but it's specialized in refrigerated and dry freight. But it doesn't, it specifically says that they've got like this custom technology and they provide attractive opportunities for owner operators, currently managing 15, which will contribute to the growing fleet. So I think these guys are booking, like basically all their trucks are like 1099s. But, Bill, it says the company currently owns 35 trucks and 40 trailers, because I would have thought the same thing. But I had written that down because I was all ready to go on depreciation and maintenance CAPEX,

my favorite topic. So I'm not sure. Unless that's wrong, I think they do own the trucks. Okay, so they do. So what is this business? Maybe they both. So I think this is like a very, very small, in the grand scheme of things, this is a very, very small trucking company. And there's been a massive apocalypse in the freight industry and in trucking recently. Like with COVID, there was way too much, you know, demand and not enough

supply, not enough trucks and class ACDL drivers on the market. And then in the last like 18 months, yellow and a couple other big names filed for bankruptcy. And it's created, like the reverse, right? There's just been an apocalypse. If you talk to people in the trucking industry, it is just like, it's borderline, you know, 2008 to 2010. But I think this is probably, there's nothing in here that makes me think this business is very old, right? Like, I don't think they've said anything about, you know, been in business for, you know, 30 years or anything like that. And if they're growing this rapidly and they have this high margin, it tells me that they're probably new. I just don't think these are sustainable margins in freight.

I love how they're like, we're going to double the number of trucks. It says you're founded in the early 2000s, 20 years old. Okay. All right. So it has been around for a little while. Yeah. I'm just, I was concerned about the size of the fleet. It said 35 trucks and somewhere it says it's about to go to 60 trucks.

Yeah. And I was. By the way, we're about to double our assets. Yeah. Why are we spending on trucks right now while we're, selling. That really confused me. And I was trying to kind of come up with a metric like the revenue per truck. Like I'm sure there's some kind of, there's some kind of metric. I don't know what it is. And someone out there listening probably does. But, you know, there's probably some metric here that

would be interesting to track is, you know, they went from $8.5 million to $15 million of revenue and they're about to go to 60 trucks. It has something to do with how many truck, you know, how much revenue per truck. I would expect refrigerated trucks to get a little bit margin, but I I am pretty shocked at 30% EBITDA margin. That seems really high. The big distinction, too, in trucking is LTF versus full truckload. LTF, less than truckload, like the big provider here is southeastern freight lines in most of the southeast.

And, you know, it's something's too expensive to ship with FedEx or UPS. And so you need to put just a pallet on a truck. Full truck load is the entire truck is going, you know, from one destination to another and all the contents are going that full trip. I can't really tell what this is. Can you all? No, but refrigerated, I would feel like it's less than it's LTL, right? I would think to fill up a whole refrigerated.

But yeah, they didn't make that very clear. And I think it's a pretty important distinction in this business. I also wonder, like, how sticky are trucking, you know, relationships. I don't think they're very sticky from what I, what little I understand. It's all about price. You know, it's very commoditized, which is tough. That's what I think, you know, kind of back to your point, Mills, what's been going on since COVID and before, you know, this is always a very cyclical industry, but it's even been more pronounced since COVID, I think has to do with that in that, you know, they don't have sticky customers and it's all about price, a little bit about service. I mean, you've got to deliver, you got to deliver on time in the right place.

But I think that sometimes takes a little too much of a backseat to price. Hey, Michael here, I want to let you know that I'm hosting a conference, first time I've ever done it, and it's called Holdco Conference 2025. If you want to learn how to manage multiple businesses at once, how to incubate new companies, or how other whole co-owners and operators run their fleet of companies, then should come to Utah next spring. We've got a ton of great speakers, including Walker Diabell who wrote Buy Then Build and founded Acquisition Lab. Plus, we're hosting it at an all-inclusive mountain resort so you can hit the slopes at the end of the day. So please go to holdcoconference.com for your tickets and get 10% off with your discount AA pod. That's holdcoconference.com. and use code AAPod for 10% off. Now, back to the show. So one of my favorite TikTok channels these days, I have a lot of favorite TikTok channels, but there's the genre of TikTok channel, which is people who are independent freight brokers

and independent freight bookers. So there's all kinds of different ways this can work, right? You can have, like Bill, you were talking about, there's a pure freight broker who's just like, they get loads and they buy them and sell them. Then there's other folks who are, basically the booking agents for individual independent trucks. So a lot of trucking is Russians and Eastern Europeans in the U.S. So I don't know if you've ever had a car shipped. There's a very

good chance a Russian dude will deliver it for you if you have a car shipped across the U.S. It's happened 100% of the time I've had a car shipped. A Russian dude either picked it up or dropped it up. Like Vladimir was the one picking up my car. So a lot of trucking is these Eastern Europeans. And so one of the channels that I love to watch is, is this guy who each little vignette is him taking and trying to arrange freight for one of the trucks that he manages and books for. About 50 episodes in, I learned that this guy who has a pretty heavy accent, like a Moldovan accent, is in Moldova. He's working from Moldova booking all the freight for these guys, and he's an independent. And later on I watched TikTok with him, he's like, there are hundreds, if not thousands of us in Eastern Europe who are booking freight across the United States.

none of the book companies or anybody has anything the wiser. So it is a hugely fragmented industry to your point, Heather, and to some extent, like a very red ocean that is painful if you get on the wrong side of it. So yes, a very red ocean, but also there are thousands of guys in Eastern Europe booking freight. Like, if you can build an engine here that can sell and book freight, you can take major share because this industry is ancient. So as someone who has booked a lot of trucks, it seems like all of us on this podcast and those listening would think like, oh, like, you know, you want it, you have a load and you need a reefer truck. You go to like Uber for reifers.com, right? And you quote it out and you get the best price.

And sort of is the answer. Like there are big freight brokers. More often than not, you will go to a freight broker and they will do it. There are some platforms that brokers have access to that you would not as a regular shipper. But a lot of times people just like get their guy's name, like their trucking company's name, and shockingly just call them. Like, and don't bid the rates or the shipments out. And it's not because they can't. It's just because they don't. Because there's, you know, they're sending a truck every week and they got their regular guide. He picks up every Monday.

And it doesn't make sense to bid it out every single week. And they kind of get on a contracted rate and they just go. So it surprised me at how much of the. this industry is old school and does not shop every load. Interesting. And I wonder if the trucking companies take advantage of it, and that's how they get to 30% margins. I think so.

This Moldovan guy, like, it is a master class in negotiation. Like, he does all the stuff that you're supposed to do as an astute negotiator. He doesn't make the first offer. Like, he reserves information. Like, he always tells you, like, it's not high enough. He has all kinds of data points. like to twist it back on you. He does all the, Bill, you'd love it.

He does all the master negotiator guy. He does all the like making you empathize for him. He's like, well, I can't make money for that. Or I have 200 miles of deadhead to get there. Like it's a master class and how he does it. But like what he's doing is, is like the one side will offer $1,200. And this guy's trying to eke out another $250 or $200 on each individual load. And that's where all the margin is.

And it's fascinating to watch. But yeah, I mean, it's built to your point. this is a space where if you're really good and you're a great operator, you're going to get paid. If you're not, you're going to get fried. So it seems like one of the things that they're doing here, right, is moving away from the asset intensity. I don't think they can functionally double the number of trucks overnight, nor would they double the number of trucks overnight if they're all purely owned and financed, right? These are expensive trucks. And so, you know, they mentioned they're currently, you know, managing 15 owner operators.

that's just a guy with a Class A CDL who says, I want to own my own, but I don't know that I can stay busy on my own. So I'm going to go haul other loads for other people. My guess is that that's really beneficial for the incoming owner, but also a very changing dynamic inside the business. If they're owning and operating 35, you've got to have 35 plus guys with Class A CDLs in order to It's a logistics nightmare. Scheduling, you know, just the day-to-day grind of this would be very, very nuanced. Not something that you're going to pick up overnight. The owner, you don't want them leaving in two weeks is what I'm thinking.

Yeah, dispatch team that provides 24-7 customer service, it says right there. So, yeah, you've got calls all every day, every hour. Those are the guys you put in Moldova, though, right? Like, that's how you make margin in this business. This is classic, you know, you can get an edge here by having structurally a lower cost of labor, right? And you can make a little bit thinner margin and win more business. Yeah. So who should buy this business?

And maybe there's different personalities, but who should buy this? Maybe you should send it to your TikTok guy. Yeah. I don't know why he would. I mean, he has a great business, right? His whole business is he partners with individual owner operators of trucks, and then he negotiates on their behalf and finds good. deals and books them for them and then takes a percentage of it. So he's, I love his business compared to this way. He doesn't own any trucks. He's not like, he doesn't get flat tires. He works in Moldova.

He's probably living like a king, right? Like, so I, you know, I would be happy to be in that business compared to this one where you're taking so much risk. You have all these contract drivers. You own these trucks. Somebody gets drunk and drives it into the side of a produce stand. You got huge problems and my ability. Like, man, I'd rather be the Moldovan guy over this business any day of the week. I can see, like, the son or daughter of somebody who had a trucking business. So, like, your tech savvy and knows how to hire people overseas and, you know, build like a sales team, but also knows the trucking industry.

You know, I think that would be great. Because what you need, I think, in order to keep kicking butt in this business is the ability to, like, do sales, to build that team, that calls, center and that's doing support, but that's also booking freight, you know, there are all your money, a lot of your money is made on the phone. But you also got to know the trucking business because you're operating trucks. I also wonder if there is some sort of some of the parts deal here. Like, can you buy this and get all the trucks with it and immediately sale lease back the trucks and get back 50% of your purchase price, you know, like overnight or more? Or sell

the trucks to another trucking company and immediately just start booking loads for them. There's two bits of this business, right, driving the trucks and booking the loads. I'm willing to bet one of them is a good business and one of them is not a good business. And I wonder if there would be a way to pivot this into just the good business. Well, and like I think the people who succeed in this industry are the ones that do it with very low amounts of debt in a very, very, very long time horizon. And so buying something like this, you're talking about you have to buy with debt. more than likely. And you know, you've got to make debt service payments so that shortens your time horizon by necessity. And so it just with with as fickle as this market can be and as fickle as

pricing and demand can be, it's really hard to maintain, I think, just debt service obligations over the long term. Yeah. I mean, free cash flow is not $4.5 million. This is, that's EBITDA with a D. and probably the probably the D is a million and a half dollars. And so, you know, this is probably three million at best before maintenance CAPX. You know, there's probably some stuff

being capitalized there. So it's maybe even a little sub $3 million free cash flow. And it just got there. So you don't know how sustainable that really is because we don't know what drove that doubling of sales. So it feels like owning trucks,

to your point, Bill, is something that's better done at scale, much bigger than this. And at this size, it's probably really, really tough. So I like your idea, like pivot, get rid of the heavy assets and go for more the sales side and the brokerage side. But as far as who buys it, it feels like just a bigger trucking company that wants to add to their fleet, if they're going to run it the way it's been run as a trucking company.

Unless there's contracts here, what are they buying? Yeah. I mean, you're buying some trucks and some relationships. and some drivers. And we've changed to a different world, as Mill says, where there's a glut of those things. You've got people applying for jobs. So, I mean, I guess that's why these things often trade

as a sum of the parts, build to your point, like cost of the value of the trucks, the value of the drivers. Like, you know, your assets roll out the door every day and you hope they come back. Yeah, it's very hard to value this thing without knowing what the trucks are worth. I mean, the balance sheet on this thing

is going to be a huge, huge driver of the purchase price. There is a reason banks don't want to finance these kind of companies. So, Heather, this is your entree. You can do your bank. You can do your lender rant about rolling stock. Rolling stock, you use the word. There it is. It rolls away.

It doesn't come back. When you go to liquidate, it's all gone. Same thing with boats and airplanes. Same thing. And, of course, it's this whole idea of maintenance, CAPEX. You sort of have to figure out how much. does it really cost you on average each year to maintain and replace the equipment, the fleet?

And you're guessing when you do that. At best, you're just guessing. And then you've got growth CAPX too. They want to go to 60 trucks. How are they doing that? It's a lot of money. Very expensive to grow. This is a tricky one. This is very, very tricky. I think it's probably a good add-on for a business already in the space. Yeah. I would think, I would think, this is a very, very easy add-on. And just on day one, you integrated into your systems and you've repaint the trucks and you're off to the races. Gerdly trucking. I can see it now.

Gerly World Trucking. Fantastic. Let's go. Well, I knew a guy who was like a very flamboyant, like truck and company owner. And he talked about big and millions of dollars and how this money he was making. And then like the next year he was like divorced and broke, like 12 months later. Like things went horrible. So yeah, there's a reason why banks don't like bees.

And I think to some extent why if you're going to own a business like this, like there's a lot of people go into cyclical businesses and don't expect them to be cyclical, right? And I see it happen a lot. And this is one of those ones where like you may be feasting right now, but you better get ready for the famine because it inevitably comes. That's when you sell the business, Michael. That's what they're doing. I mean, when people get in trouble, when people get in trouble and like, you know,

I've said this to friends that are, you know, like the light industrial real estate business has been absolutely on a tear for the past four years. And like, I've said this to friends in that market, like, hey, like, this can't go on forever. You're in a cyclical business. And they're like, no, that'll be fine. I'm like, I'm not sure it will. I am sure that there will be a glut of light industrial at some point and you're going to be in trouble. So we'll see if I'm right. But if you're going to go to a cyclical business, you should know it's cyclical. If you are buying a sick little business and it's been growing for the past several years, what does that probably tell you is coming in the next several years?

Right? Draw the graph, exactly. And well, that's the things with freight too is like it's functioning a commodity, right? So the price, kind of the market-cleaning price of freight goes up and down, you know, all the time. So you don't have a lot of pricing power. But then you have fixed assets and debt payments and all that stuff. So you just get crushed at the bottom. Yeah, absolutely.

tough one. We lost our, we lost our co-hosts, Bill. What happened? What did you say? We're having a everybody at a tight timeline. So Heather and I are now going past our allotted recording time. So this is the two of us. So we get to rate the deal. Yeah. And without them.

Michael and no, it's too bad. Yeah, Heather said, I already knew. I'm already done. Thumbs down. Heather is instant thumbs down. I'm actually I don't know what the hand signal for Get the Book is. Like Sign the NDA is. But like, maybe.

You know, I would get this book, and I really want to understand the balance sheet. I want to understand the condition of the trucks and what they were worth because I would be curious to see if there's a financial engineering deal here. Where, you know, you could get leverage. Like if they own all the trucks free and clear, there might be an asset-backed loan on the trucks, you know, more like a truck loan that you used to help finance this business. And you could do that plus, you know, seller role or seller financing. and you'd be able to buy this business for not a lot of money.

So I would be interested. Yeah. I would get the book here to try to understand, first of all, why it's growing like it is. Second of all, what's going on with the assets. And third of all, if there's like a good business, bad business, split. Like this is interesting enough that I want to learn more about it. Well, somebody will probably learn more about it. Maybe they'll tell us.

That's right. That's right. Tell us, tweet us, if you know about the trucking industry. We'd love to hear. We are on Twitter at ACQU Anon. I'm also at Bill D.A. And Heather, what is your Twitter at? Vizzo.

Oh, my Twitter is Inderson, Heather. I did the last name first. And my website is Vizzocap.net. If you want an SBA loan, check me out. But not for trucks. No, don't come back to me for trucking company or truck loans. So, yep, check out, Heather. If you're trying to buy a business.

She is absolutely one of the most knowledgeable SBA loan brokers on the market. She worked with pretty much every liner in the country and will get you a great loan. I have seen it happen dozens, if not hundreds of times by now. So thanks for tuning in to Acquisitions Anonymous and we will see you next time.