Rob Adams at Bluejay Advisors describes how building your brokerage to “amp up your multiple” allows you to start building a business that operates with or without your daily input.
"Amp Up Your Multiple"
Over-leveraged, customer concentration, deferred capex, or cash-basis financial statements? If your company is faced with any of these challenging circumstances, there is still hope to sell your business and receive an attractive valuation.
Companies with solid leadership and an attractive business model usually have investment bankers, private equity firms, and strategic buyers blowing up their inbox with meeting requests. Congratulations to these companies as they can expect to command a high single digit multiple or an even a higher multiple like those attained by 3PDelivery (acquired by XPO) and Coyote Logistics (acquired by UPS). Most investor groups value a business based on a multiple of free cashflow or earnings before interest, taxes, depreciation and amortization (EBITDA, EBIT if non-asset or EBITDAR if rental payments).
For the rest of us, let’s start transforming the current operation to a non-asset, asset-light, or asset-medium business model built around solid leadership. Even with a dedicated or specialized transportation operation, you can create a technology-enabled logistics solution that is viewed as an asset-medium platform. If there is a leadership void, and you are one of those rare founders that can set aside their ego, we recommend engaging a group like Jason Ward’s Industrial Search Partners or Mike Knox of Global Executive Solutions to assist by carefully crafting a position description, identifying a range of qualified candidates, and spending a significant amount of time to select the best fit for your vision, culture, and personality. Remember it is better to continue without the right person than to hastily hire someone to fill the box on the organization chart.
Now that we have an attractive leader and business model, lets increase the valuation multiple by focusing on the following value drivers:
- Organization Structure
- Technology platform
- Administration platform
- Communication Rhythm
It is imperative to create a scalable platform to attract a premium for your company. Other than the use of creative financial engineering, the only way to justify these lofty multiples is through growth on an existing platform without a significant additional investment in time, capital, and resources.
Investment groups back management teams because people create the vision, lead the team, and execute on the plan. An effective organizational structure including a leadership position for revenue generation, operations, and administration is a key component of the foundation for a scalable platform. Unfortunately, some organizations have a “structure” with the owner/founder/leader and then everyone else. This may work for a lifestyle business (i.e., providing a good living for the owner) but it is not scalable.
Along with solid leadership and effective organization structure, a well-designed scalable technology platform is a key piece that adds meaningful value. Internally developed technology systems may be attractive in some situations but are the exception as opposed to the rule. The company must carefully assimilate the best in class applications to create an effective EPR platform. TMW, McCloud, Dynamics NAV, Oracle and others have solid platforms but they must be customized for specific business processes. As part of the solution, your team must effectively integrate the TMS, WMS, YMS, GL package, payroll, CRM, and various other necessary applications into a scalable platform.
Since most businesses are founded by an entrepreneur with either an operational or sales background, investing in a “bean counter” is typically not a priority. With most private equity and investment bank personnel having financial backgrounds, the inability to communicate the business story with accurate, timely financial information will impede a transaction and negatively impact the valuation. A financial audit by a reputable CPA firm, monthly financials distributed by the 10th day of the following month, and real time flash reports with operational, growth, and financial metrics are all expected in a disciplined company. In addition to these timely, accurate, and detailed financial statements and metric reports, the administrative platform manages the treasury/banking relationship, technology, insurance, human resources, forecasting/bids, training, litigation/tax, and other support functions necessary to effectively scale the business.
Many owners want neither their employees, customers, nor vendors to know how well or poorly the company is performing. This is a reasonable concern but, for a company to be successful, the employees must know what is expected and if they are meeting these expectations. Consistent with Verne Harnish of Gazelles.com, we strongly recommend a consistent rhythm of 15-minute morning huddles, 1 hour weekly Top 3 priority meetings, monthly operating review, quarterly half day planning session, and an annual off-site retreat. Each of these meetings are very tightly managed/prepped, have a hard start/finish time, have concise consistent reporting, and have controlled communication of relevant/actionable information. Disciplined, effective, and relevant dissemination of expectations and the supporting information are key to an aligned company that is poised for growth.
Great companies start with great leadership and attractive valuations start with scalable platforms. While most people do not build their business for a transaction, it is strongly recommended that this is at least an option. Build your company with a solid foundation of people, technology, administrative support, and communication. Then you can decide if and when to benefit from an “Amped” valuation multiple.
Rob Adams is a managing director at Bluejay Advisors. Rob built a knowledge base of finance/accounting with Deloitte, operational/P&L management with Waste Management, and value creation with Lincolnshire Management’s port logistics portfolio company. He lives with his wife, three sons, and two dogs in Atlanta Georgia.
Bluejay Advisors (www.bluejay-advisors.com) provides transaction advisory services for the logistics industry including complex capital raises for organic growth/acquisitions/partner buy-outs, operational assessments of the business model, and strategic positioning for a potential transaction. The firm's leadership has operational and P&L responsibility with logistics companies including truckload, LTL, drayage, warehousing, rail services, finished vehicle logistics, port services, 3PL, brokerage, waste management, and ecommerce logistics. Our expertise, experience, and industry database provides our clients with a unique skillset and a minimal learning curve.