Drivers & Their Impact on Business Value
“I could double my business today if I only had the drivers to support the new revenue.” This comment represents a universal frustration across the trucking industry. We hear trucking owners express a version of this message week in and week out at Tenney Group. Consequently, the driver shortage is making acquisitions a more cost-effective, risk-averse alternative to organic growth. However, just because you have drivers, doesn’t mean they are valued the same way. Below are six questions educated acquirers ask about drivers in the context of valuing a business and a driver pool.
What is the driver turnover rate?
The driver shortage is a wide scale problem and the typical turnover rate is high. Some companies are more insulated from it than others. Educated buyers are really wanting to quickly identify outliers. Are they performing better than industry norms, and if so, how? Worse…why? The answers to these questions will begin shaping how a buyer views the value of the business as a whole.
What is the remaining career of the most tenured drivers?
The span of a truck driver’s career is significantly shorter than that of the average working American. Siphiwe Baleka, “America’s Fittest Trucker” and author of 4 Minute Fit, has some startling data on this topic. Your driver turnover rate may be 30% below the national average but if the average age of your drivers is 56, that is going to be a source of concern for educated buyers. If the most dependable and valuable assets in your business are scheduled to retire in droves in the next few years, a buyer must incorporate that undeniable risk in his value calculation. In this scenario, it is very likely that the business will have much higher expenses related to recruiting and training new drivers in the future.
Where did the least tenured 33% come from and how long have they been with the company?
I was recently on a panel with Bison Transport’s Chairman, Don Streuber. We were sharing insights about strategic acquisitions to an audience of trucking business owners. Don was quick to point out that adding “any” driver is not a guaranteed win. In the context of exploring a large acquisition that included 400 drivers, he discovered that 100 of the target company’s drivers were formally employed by Bison and terminated for not meeting performance standards. He was not interested in investing in drivers he had already determined were not a fit for his company’s culture and performance standards. He passed on the deal. That is why it’s critical to understand the background of the bottom 33% of a company’s driver pool. If the story about the bottom 33% was different, he would have likely valued the drivers and the business much more favorably.
In what ways does the company’s culture increase the likelihood of retaining drivers?
Buyers, on the most basic level, want to assess if the target acquisition is a place where drivers are valued. Are they treated fairly? Do they have access to management? Do they share quality reviews about the company on Google? Do they respect and appreciate their dispatcher? When the energy around drivers is toxic, it presents a significant risk to the prospective buyer and greatly limits the potential value that can be placed on the business.
How are the drivers paid and when was the last pay increase?
Initially, the buyer just wants to see if there is compatibility in the way the buyer and prospective seller are paying drivers. If the variation in method and amount is too great, the conversation is not likely to go very far due to a lack of overall fit. They are equally interested in knowing when the last time the drivers received a pay increase. If an educated buyer identifies that the seller has postponed or ignored a scheduled pay increase, they will likely adjust the adjusted earnings calculation of the business accordingly which will directly impact the value they place on the business.
What is the age of the equipment?
Drivers don’t want to drive garbage. To be competitive, business owners need modern equipment that experienced, safe drivers want to operate. If the company is operating dated equipment, they will likely discount the valuation for two reasons: 1) they will need to invest significant capital to update the fleet post-transaction in order to avoid rising maintenance expenses and 2) they will need to keep quality equipment in the fleet to retain and recruit quality drivers. The greater the expected post-transaction expense, the greater the discount to the company’s value.
What does this mean in dollars and cents? Business value directly correlates to risk. One of the greatest concerns for trucking companies is drivers. As you reduce the perceived risks of retaining and recruiting drivers, you can literally enhance the value of your trucking business by millions.
About the Author
Spencer Tenney is Managing Partner of Tenney Group, an advisory group dedicated to transportation since 1973. The Tenney Group specializes in business sales, acquisitions, and succession planning across the United States.
Editorial Note: This blog is the first guest blog we have offered on the Stay Metrics site. We plan to offer these pieces periodically to enhance our breadth of topics and bring in experts in their fields to help you and your business. Please assume that the opinions expressed are those of their author and do not necessarily constitute a company position by Stay Metrics.