Exit planning considerations for the road haulage sector

The road haulage sector accounts for approximately 77% of all goods moved (c3.7 million tonnes) in the UK. The sector is highly fragmented with the largest player in the market having only a 5% market share, and approximately 85% of businesses having fewer than 5 staff.

The above creates significant opportunities for consolidation, and the Corporate Finance team at MHA Moore & Smalley have advised a number of businesses in relation to their acquisition and exit planning strategies.  

This blog focuses on the key factors which should form part of an exit planning strategy in this sector. Based on our experience the key areas to consider include the following:

Management team

In common with other sectors, acquirors will typically attach more value to those businesses which have strong management teams, and therefore a lower degree of reliance on the exiting shareholders.

This is particularly important in the highly competitive road haulage sector where customer relationships are often critical (and contracts can be difficult to obtain).  Strong 2nd tier management will provide continuity to an acquiror, and therefore lower the perceived risk profile of the potential acquisition.

Management Information

It is important to ensure that acquirors are presented with management information which is sufficiently detailed to enable a clear understanding of the business to be obtained.

The Information Memorandum provided to acquirors should also contain a financial projection. This projection  should set out the projected short and medium term financial performance of the business.

The projection should clearly outline the potential financial impact of future opportunities, and should be accompanied by supporting assumptions. The assumptions provided will need to include clear explanations for significant variances between the projected performance and recent trading performance.

When forming a view on the valuation of the business, acquirors will consider the degree to which they are prepared to take into account future opportunities. Providing the above information  can significantly increase the weighting  which an acquiror will attach to future performance, thus resulting in a higher valuation of the business.

Effective cost control

Effective cost management  is important to the success of road haulage businesses, particularly because one of the main expenses is fuel, the price of which can be volatile.

Fuel prices impact on road haulage to a greater degree than other forms of transport (due to current limitations on vehicle fuel efficiency). Therefore management should ensure that customer contracts incorporate automatic adjustments for changes in key input prices such as fuel.

It is also important to ensure that other costs, particularly those which are subject to less uncertainty, are clearly understood and tightly controlled. This will provide a buffer for unexpected fluctuations in costs such as fuel, which are subject to more uncertainty. C

Consider obtaining long term sales contracts

Acquirors will typically apply a higher valuation multiple to those businesses with future earnings underpinned by contracts.

Environmental factors

Operators are increasingly  subject to regulations on vehicle emissions (such as the Euro VI emission standard). Acquirors will therefore expect owners to be aware of their current vehicle emissions,  to enable the impact of future changes in regulations to be understood

Management should also consider obtaining 3rd party green accreditations as a way to differentiate the business. For example some operators have obtained the Carbon Trust Standard, and obtaining such accreditations can help to enhance the reputation of the business.

Technology

It is important to ensure that the business keeps abreast of key technological changes (such as advanced route planning software to maximise fuel efficiency) and ensure that technology is implemented in the most appropriate way for the business.

This will ensure that the business benefits from improved efficiency and increased profitability, therefore increasing the valuation of the business.

The above are just some of the areas which should be considered as part of an exit planning strategy. If you would like to discuss further, please contact Ian Waddingham from the Corporate Finance team at MHA Moore & Smalley on 01772 821021

Optician firm focuses on succession and growth

Optician chain David H Myers has completed two significant deals as part of a succession planning strategy that has introduced new blood to the management team, while developing the business.

The chain, which operates branches in Southport, Penwortham, Leeds, Churchtown, and Lytham, sold a substantial minority stake in its Churchtown branch to Rob Lowther, who already owned a major shareholding in the Penwortham practice.

The deal will see Rob taking on management responsibilities for operations in Churchtown, in addition to his ongoing role in Penwortham.

In a second transaction, incoming director Paul Jones has acquired a minority stake in the Lytham practice from each of the owners, David Myers and Ian Brooker.

The Lytham deal will enable Paul to work with Ian to drive the ongoing expansion of the Lytham business.

David, who founded the business in 1979, said: “These two transactions are pivotal to our succession planning and growth strategy. The first deal allows Rob to take on a remit for managing our Churchtown practice as well as his role at Penwortham, while the second means Paul will step up at Lytham to assist Ian in a management role that will enable the further development of the branch.

“Just as importantly, the two deals will generate resources to fuel our ongoing expansion programme and we are currently in discussions with owner-managers of optician practices regarding potential acquisitions.”

David H Myers has received corporate finance, transaction services, tax and succession planning advice from the team at MHA Moore and Smalley.

Partner Damian Walmsley commented: “David H Myers is a successful and ambitious optician business that is managing to implement effective succession planning, while also developing the management team and creating sufficient resources to continue its expansion programme. I have every confidence that the business will continue to succeed.

David Myers added: “We have been working with the team at MHA Moore and Smalley for many years and have been consistently impressed by their friendly, yet professional approach and willingness to truly understand our business and its needs going forward.”

Open Banking Changes within Quickbooks

Open Banking regulations have been introduced in the UK.

In line with these regulations, QuickBooks is upgrading its bank feeds. Existing connections will be switched off and replaced with a more stable process which will give you a better experience.

Once these new feeds are ready, we’ll ask you to log in into QuickBooks and authorise the new feeds. This will allow your data to keep flowing into QuickBooks without interruption.

The new feeds will give you more control, improving the process and making it more secure.

Please note, for security reasons, the connection will need to be re-authorised every 90 days. If you have further questions about Open Banking, you can find more information on this FAQ on the link HERE

Laurence Kelly

Professional: Laurence joined the Financial Planning Department of MHA Moore and Smalley in 2002. He has worked in Financial Services since graduating from university, is an Associate of the Chartered Insurance Institute and a Chartered Financial Planner.

He is a general practitioner specialising in Trusts, Pensions and Corporate Financial Planning. Working out of the Blackpool and Preston offices he provides holistic advice to a portfolio of clients.

Laurence is seeing an upturn in business across a wide spectrum including auto enrolment due to legislative changes, large pension funds because of changes affecting the lifetime limit, and joint ventures with solicitor practices because of the opportunities opened up by changes in the legal profession.

Personal: Laurence’s spare time is spent with his wife and 3 sons. He enjoys socialising, is a keen skier and a lifelong supporter of Blackpool FC, of which he and his sons are season ticket holders.