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DRIVING THE VALUE OF YOUR TRUCKING COMPANY


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or any privately held transportation company, the topic of valuation is frequently top-of-mind for owners. There are numerous factors that impact


the direction of valuations, and it is a challenge to keep track of, let alone influence, the abundant drivers of value.


In recent years, company valuations had been positively impacted by tax reform and an overall rising stock market. However, the COVID-19 pandemic resulted in various challenges that tested the ability of trucking companies to adapt to the new normal in the industry, which included customer shutdowns, supply chain issues, and fluctuating load volumes. Additionally, valuations have been impacted by certain industry trends: driver shortages, volatile fuel prices, and tight capacity.


So how has a company’s value been impacted overall by the movements of the economy? And more importantly to business owners, what is the most effective way to build a higher company value?


Buyers and sellers of trucking companies must consider a long list of factors when determining value. Some of these factors take into account the financial condition of the company - think of these as the quantitative factors like net book value and free cash flow margins. But several important qualitative factors, such as driver quality, customer relationships, and management experience also affect value and cannot easily be measured. These qualitative factors often separate the most valuable companies from the pack.


Three general methods of valuation are most commonly used to translate these quantitative and qualitative factors into a company’s overall value.


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Three General Valuation Methods 1. Income Method


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Buyers need to estimate the future cash flow that can be generated by a trucking company. Understanding the company’s historical cash flow performancence provides the basis for developing a meaningful forecast. Is it possible to have a perfect crystal ball when forecasting? Of course not. But analyzing the potential cash flow capacity of the company can help buyers (and sellers) understand the opportunities and risks ahead.


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Specific to trucking companies is the analysis of fleet replacement. Earnings before interest, taxes, depreciation, and amortization (EBITDA) alone does not factor in an aging fleet that will require significant capital expenditures to replace tractors and trailers. Analysis of projected net working capital is also required to gauge the future levels of free cash flow that a buyer would expect after a transaction.


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2. Market Method


The value of publicly traded transportation companies is determined every day in the stock market. Real- time market information also has an impact on the value of smaller, privately held trucking companies. However, these stock market valuations are not always appropriate guides for the value of privately held companies due to the larger size and diversified operations of public companies.


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There are many transportation companies that are privately held and not publicly traded. Transaction dataaction data on the sale prices for privately held trucking companies can provide a guidepost for valuation multiples. These multiples may be calculated based on a


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CARRIERS & BROKERS


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