The history books will show the pandemic was particularly devastating for the motorcoach industry, pushing hundreds of operators to shutter, often after decades in business.
But operators that closed without looking for a buyer likely left money on the table, contends Ken Lucci, mergers and acquisition consultant in the motorcoach and limousine industry.
This was the case with an East Coast motorcoach company that announced on Facebook it was closing its doors.
“Well, I have a buyer who was a young-gun player in the chauffeur space, and he had bought his first two motorcoaches. He was keen to buy a coach operator. The coach operator that closed was literally 40 minutes away from him. He would have bought that business,” Lucci said.
Lucci and operator Dan Goff joined the UMA Town Hall session as part of a panel moderated by UMA CEO and President Scott Michael to discuss the opportunities of buying and selling in a post-pandemic market. They had advice for owners of motorcoach businesses who are thinking of selling and what they might do to prepare.
Don’t let assets go to waste
Lucci’s firm analyzes the financial data of a potential purchase target so the buyer can evaluate the opportunity for future growth. He says he’s had success structuring deals with a deposit, which can be as much as 30% of the sale, with the rest being paid over the next few years if the business meets performance expectations.
“This particular business, from what I understand, was a $4.2 million business in 2019,” he said of the operation. “I can safely tell you they left $800,000 to $1.2 million on the table. Even in a worst-case scenario, if their revenue didn’t come back, they left half a million dollars on the table because they were a 35-year-old brand name with a customer list. They had repeat business. Without question, it was eventually going to come back.”
The motorcoach owner told him he was moving to Florida and wanted to sell the equipment rather than look for a new owner for the business.
It was a missed opportunity, Lucci said.
“Walking away is crazy, because, first of all, your customers are going to scramble eventually to find people to replace you,” Lucci said. “Your CDL employees need to go someplace else, and there’s a lot of companies that need CDLs. Your staff members, if they want to stay in the transportation space – you’re not doing them any favors.”
Tailor your deals
Goff, the owner of A Goff Limousine and Bus Company, has bought three businesses during the pandemic. In every acquisition, the seller was in the process of closing the business and hadn’t considered selling.
Here’s an overview of the three deals Goff said he made during the pandemic.
First deal: “Because the owner was pledged personally, his only option was to personally file bankruptcy. We acquired the company’s phone numbers and other assets, which we bought at fair value before the business filed for bankruptcy. The money was used to pay creditors. We made the deal in our first phone call. We put in a sweetener for the seller by hiring him to be a commission agent within a specified geographic territory. He doesn’t work in the business on a day-to-day business but occasionally consults by phone. For that, he earns a percentage of sales from the whole geographic area.”
Second deal: “The business owed more than it owned, but they had other assets. We bought a bunch of buses from him. He was able to turn a bunch of buses into liquid money, and then we paid him for the intellectual property. He got fair market value, and it was better to make that single deal without having to pay commissions or lawyer fees. He got relatively close to what was owed. This deal closed in a week.”
Third deal: “This was more complicated because the difference in the value of the assets and the debt owed was significantly higher. But the owner had CERTS money they couldn’t use because there were no employees. They had to close. We could use the funds, but we had to buy the corporation. That’s a much longer process, with lawyers and accountants involved.”
Keep it simple
The key to these deals was making them simple, said Goff, who owned a business brokerage for 11 years.
“What kills most deals is making them too complicated,” Goff said, adding, “The key thing for an acquirer like us is to have a legacy of previous sellers that a potential seller can call and say, Hey, did this person treat you right? And if those sellers say yes, they did, that gives you credibility with the seller.”
Lucci said sellers must take steps to maximize potential revenues.
“This is not something where you’re going to say, ‘If I get the right price I’m going to get out,’ because there are certain things you need to do to prepare the business for sale,” he said. “You need to have three to four years of clean financials. Your tax returns and your internal financials need to have a consistent story. You need to be able to look at the tax return and be able to tie back the specific numbers.”
Long-term thinking
Lucci said his deals hinge on a company proving its resiliency over time.
“So to get paid today for a maximum value when a large percentage of business is not back yet, it’s not going to happen. But with a bonafide guaranteed earn-out transaction, you’re going to be able to maximize your value,” Lucci said.
For a business that has been profitable, has at least 10 years in the marketplace and repeat customers, it makes sense to sell the operation rather than close and liquidate inventory, even if the business is currently struggling with debt and a drop in revenues.
At the very minimum, operators getting out of the business should reach out to an operator to sell their book of business. Just make sure this is a formal agreement, Lucci says.
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