Buying A Business: Finding The Business

Trucks on Road - Small.jpeg

“Operating Transport Company For Sale”

It wasn’t the title I would have given to the ad, but it was enough to make me look at it. More to the point, the price (<£50k: very unusual for a haulage company) warranted further investigation.

Let’s back up a bit. I don’t always even read the “email alerts” that come through from the various business for sale listing sites. I’ve set my preferences to be sent businesses in the transport and healthcare fields, so these emails inevitably contain long lists of domiciliary care franchises for sale, care homes, and MOT testing centres, none of which are of specific interest to me. But I do try to make an effort to scan through these emails, because sometimes they contain gems – unexpected opportunities that make all of the previous searching worthwhile. This was one of those times.

So here I was scanning through one of these emails (my colleagues and I would generally fit into “Circle C” in the Venn diagram on the types of business buyer – we are actively searching, but not always via the business for sale sites – however we do receive these emails). The usual examples of tangentially-related businesses were listed: a care home, a non-surgical cosmetic medicine business, another care home, a taxi company… then this one. “Operating Transport Company For Sale”. Although it was vague I couldn’t rule it out like the others. It was located in the same town as our existing transport company, Nomad International, which would make integration far easier if ever things progressed to that point. And the price bracket was interesting, so it was worth following the link to the website to find out more.

Unfortunately the ad itself, on the website, was as brief as the “teaser” description in the email alert. The only details were the three criteria at the top of each listing (asking price, turnover and net profit), and only one of these was disclosed: the asking price of “<£50k” as in the ad. But the effort required to find out more about a business is very low – just a couple of clicks will send a pre-written request for more information to the seller of the business – so that’s what I did. At least there was no broker, so the request would go straight to the seller with no middle man, and no delay.

Quite often when you send these requests for further information, you never hear anything back. While this is surprising, it is partly explained by the nature of the “free trial” for sellers on these sites, which enable them to gauge the interest of buyers but not receive their contact details. Those sellers who choose not to proceed with the fee for advertising never end up receiving your contact details and can’t reply to you. It seems unlikely but it happens more often than you’d think.

After a few days of nothing, I assumed this was one of those ads. Maybe my enquiry was the only one, and the seller didn’t want to pay for the advertising in order to be able to contact me. Maybe he had just changed his mind about selling.

Then I received an email (this is the entire email):

“Good afternoon,

I created the company, the company is fully working. there are drivers, companies with whom I work, as well as parking, transport manager, accountant. International cargo license with three trucks and three trailers, an opportunity to increase. cards for fuel. everything you need for further work .we have a job, we just have no investment for further work, so we sell it.”

OK so the business was real after all. And more importantly, it was a haulage company like I thought – not a courier or a taxi service. From the brief details, until now, it had been impossible to tell for certain. A haulage company with 3 trucks and trailers would be turning over somewhere in the region of £300k to £600k, and may have assets too. Profit is a different story of course, but I had enough to know that it was worth investigating further. The asking price showed that the owner had reasonable price expectations – possibly very reasonable, depending on the profitability and balance sheet – and at this price it was perfectly within the range that could easily be covered by our transport company without requiring finance.

The seller hadn’t sent me an NDA to sign, so I was glad to skip this typical (but onerous) part of the process. As the seller it is always best to do this, but as the buyer it is a minor relief not to have to deal with this part of the process. When sellers engage business brokers they always send NDAs as a first step (as they should), but it can often take several days after you send back the NDA before they actually send you the details of the company. No worries about that here, so I eagerly sent back my reply email asking for more information, and explaining who I was, with my contact details.

Then nothing. Again.

At least his email address revealed the company name so I could start some basic research. The company had been trading for less than one year, and had not filed any accounts – a significant concern. Businesses with only a few years’ trading history are less predictable than more established businesses, but those without even a single year of operation are even worse. And with no officially filed accounts, it would be more difficult to assess the legitimacy of any management accounts the owner would provide. He could produce accounts to show literally anything, and there would be no filed records to compare them against. But there was still hope – although it now seemed less likely that this business would be worth buying, there was still a chance that it might present a good opportunity. But if the discussions were to proceed to an actual acquisition, I already knew enough from this to know that I would have to seriously limit my risk exposure.

After a further 6 days, the seller finally replied, apologising for the delay.

“Good morning,
Apologise for delays, but now very busy time. I will try to answer the questions, but the best would be to meet if still you are interested my company.
As I said it was not enough investment. Starting a business, I didn't think that it takes so much money. I always thought that the billing will be on a weekly basis, but large company’s payment monthly, and if you want to receive money beforehand, they pay you less than they earn, and since we are a new company, it's not enough money for us. I really see that it's possible to grow further, just have to money.
If you have any questions don't hesitate to contact me.
(The seller’s full name and phone number)”

This made sense. Although he was answering a question I hadn’t asked (“Why are you selling the business?”), it was fair enough to assume that I was interested in this, and his answer was reasonable. Most of the transportation industry operates on credit – companies pay each other in arrears, with payment terms ranging from 7 to 90 days, often around 30 to 45 days. The seller was describing a cash flow crisis which is common in this industry, particularly amongst newer and faster growing companies. My existing company, Nomad, is in a rare niche within this industry (international removals), where all payments are in advance and cash flow is not an issue. So at face value at least, the problem he was facing appeared to be one that we could solve.

It was now mid-December and the Christmas break was fast approaching. I suspected from his hesitancy (the delay in replying to my emails) that he might be having second thoughts about selling, and if he could find an alternative solution to his cash flow problem he would pursue that instead. There was also the risk that the cash flow squeeze was urgent enough to stop him from trading altogether, or at least cause him to take steps that would damage the business going forward. While this pressure was obviously more on his shoulders than mine, I could foresee that it was important not to delay things.

I offered to meet the following week, and asked a couple of questions in the meantime:

“Hi (seller’s name),
Thanks for your email.  I agree it is one of the problems with the haulage industry that payment is so delayed.
I am away for a couple of days from tomorrow but we could speak next week?
In the meantime please just give me an idea of what you are selling.  You said you have 3 trucks and 3 trailers - please let me know the details.  You also said you have some contracts, please let me know what kind of work it is, etc.
Kind regards

I wanted to get an initial idea of his company’s assets (although not its net assets), as well as a guide to the stability of the business, by way of finding out if he had firm contracts for his work. He replied that he owned one of the trucks and was renting the others. He didn’t specify if the trailers were owned or not, or his debt position, but already the basic balance sheet was starting to look less risky. A truck of this kind (a tractor unit, also called a prime mover) would be worth at least £10k if it was of a reasonable standard and up to 5 years old, up to £70k if it was nearly new. The seller didn’t describe the work he was doing in much detail, other than to say that one of the trucks was doing container haulage and the other two were doing “curtainsider” work. I only knew the basics of this kind of work at this point, so the rest would have to be uncovered in our meeting. But at least this was a start.

By this stage I would be able to rule out most companies, for one reason or another. Often they would be in a sector that didn’t share enough synergies with our current business. On other occasions they would be extremely asset-heavy and require an investment that was greater than the return would warrant. Many owners would have unrealistic price expectations relative to the size, stability and profitability of their businesses, and could be ruled out even without viewing them. Others would be worth investigating further, but in the initial emails / phone discussions before the first in-person meeting, a fatal flaw like these would be found and that would be the end of the process. But this business had passed all of the initial filters.

There were still huge areas where I needed more information, like profitability and the net asset position of the company. Typically I would have been able to gather this information already, from a combination of the filed accounts and the management accounts provided by the seller or the broker, but in this case the seller wasn’t prepared with any such information. His decision to sell had clearly been arrived at quite quickly, so I didn’t hold this against him. I could tell that he wanted to meet in person, both because it was easier for him to communicate that way, and so that he could assess me in much the same way as I wanted to assess him.  So I decided not to press further for details of his company’s financial performance via email, and instead just proceed with the meeting as the next step.