Mergers

Mergers & Acquisitions

Acquisitions are the surest and quickest way to restore sale volumes and cash flow, to diversify risk, increase assets and increase the value of your company.

It is faster, less costly, and less risky to buy an existing company than to “green field” a new one. When you acquire a company, you are increasing your purchasing power, brand power, and service/ fleet capabilities, to name a few.

Start to finish; an acquisition will consume at least 500 hours of your time – about 25% of your working day for a year. This is where TransFunds Investment Banking comes in. We understand that you already have a full time job; you don’t want to use up what’s left of your spare time on more work! We’ll help you strategize, plan and prepare for an acquisition. We’ll also find target companies for you to consider, set up and assist with meetings, negotiate with the target company, and prepare a prospectus, all of which is just the beginning of how we’ll aid in the buying process.
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More reasons to acquire

Increased access to financing, and at better rates, because lenders see larger borrowers as better loan risks.

Diversification of customer base; more customers in different industries spreads your base and reduces your dependence on a handful of customer’s industries.

Synergies through better lane harmonization

Acquire proven systems.

Upgrade and consolidate personnel, premises and equipment.

Economies of scale, especially in overhead costs.

Ability to shift assets/ people toward profitable business areas, and away from less profitable ones.

Eliminate redundant equipment and people to reduce cost of transaction.

Broader market appeal: your expanded capacity increases customer confidence.

Market share/ dominance in your service area.

What a buyer should look for

Increased market share/ sales

Increased lanes usage/ balance

Under-leveraged companies

Ability to grow the existing business

Strong seasoned management

Market reputation

Cultural fit

Strong demand for services

Long term customer relationships

Long service, productive employees

Specialied equipment

Services that form a competitive barrier and command price premiums

Competitive advantage, i.e. “what’s special”.

Lower input costs

Greater purchasing power

Unrealized growth prospects

Strong, recurring cash flow

Why doesn’t everyone acquire?

Most companies lack the time, experience, and resources to ensure the transaction gets done, let alone done correctly. Transportation companies are often thinly staffed; getting through the day can be challenging enough without the added stress of negotiating an acquisition deal.

A successful acquisition project requires, on average, 500 man hours to complete. And these projects don’t just require a huge investment of time; they demand knowledge of sales, accounting, law, finance, financial modeling, and negotiating; plus a broad knowledge of the current acquisition market. The process can be daunting.

Operating with no outside help, acquisitions become a wish, rather than an attainable goal for most small companies. Acquisition plans get put on hold and are never followed through, and this is a shame. The companies who could benefit the most by making an acquisition are those who usually get caught up in managing the day to day. Their continued inaction has a very real and measurable cost. As a potential buyer, you lose out on cash flow of about $2,100 per day, for each and every day you don’t own it. That money is gone forever: this is the opportunity cost of not making an acquisition.

Suppose, for example, we identify that your company has the potential to acquire a competitor which has $5 million in sales, a 15% cashflow, and is largely debt free. This company could hypothetically be bought for around $2.3 million. Although such a transaction might require you to borrow, it would only be for the initial 3-5 years – the debt would be repaid from the increased cash flow.

Let’s say that you put $200, 000 down on the company and finance the rest. On a 5 year term, your debt service on the company would be approximately $465, 000 per annum. As such, that means your acquisition just provided a $285, 000 thousand positive cash flow to you. A $200,000 investment will have netted you a $780 per day positive cash flow.

Outline of an Acquisition

Month 1-4

Identification of potential target companies.

Prospecting, qualification, interviewing of potential target companies

Various meetings with potential target company’s owners, advisors and management team to discuss estimated company value, pricing and potential deal structure.

Issue Non-Disclosure Agreements to interested target companies along with information request.

Upon receipt of required information, evaluate the target company’s cash flow, asset values, client base and ultimate potential of the company to eventually be re-sold using a leveraged buyout model

Discuss potential deal structure and target seller company pricing expectations with acquiring company

If acquiring company is interested in the target seller company, TransFunds will set up a meeting between owners to ensure organizational and operations fit.

Provided the acquiring company is interested in buying the selling company; as there is organizational, cultural, and financial fit between the companies; and that the financing can reasonably be arranged, then proceed to draft a Letter of Intent on behalf of the acquiring company.

Month 5

Issue Letter of Intent on behalf of acquiring company.

Negotiate pricing, terms, financial, structural and organizational milestones with selling company’s owners, management team, accountants and lawyers, acceptable to buying company.

Months 6-7

Provided that both parties agree to the Letter of Intent, TransFunds begins financial modeling of both acquiring company and selling company, identifying the financial, organizational and competitive benefits/advantages of combining both companies going forward.

Upon completion of the agreed-upon financial model with the acquiring company’s owners/management, TransFunds prepares a prospectus on the transaction. This plan should also form the basis of a post-merger integration plan.

Due diligence is done by acquiring company on selling company.

Buying company’s lawyers begin drafting Share Purchase Agreement, with input and assistance where applicable from TransFunds.

TransFunds “shops” the transaction on a confidential/ targeted basis to interested and capable financial lending partners in North America.

Months 8-9

Upon receipt of term sheets from various interested lenders, TransFunds reviews financing offers with acquiring company’s owners/management, selecting the best in terms of pricing, terms and conditions, and overall fit with the transaction.

Once a shortlist of lending partners is agreed upon, the acquiring company owners pays loan application fees to selected lenders so that they formalize their proposed term sheets into offers that can be funded.

TransFunds, in conjunction with the acquiring company owners and management, continues to provide information and input as necessary to ensure formal offers are issued. As well, for backup purposes, TransFunds will keep second choice financial players interested should first choice financial players be unable to conclude their proposals.

Once formal financing offers are issued by lenders, their terms and conditions must be incorporated in the Share Purchase Agreement to ensure the transaction is funded. At this point, the Share Purchase Agreement is finalized and the deal is ready to be funded.

TransFunds in conjunction with owners, management and advisors of both companies pick a target closing date and continue to ensure that all financial and structural milestones are being met.

Month 10

Provided all preconditions and milestones are met, the Share Purchase Agreement is signed by both companies’ representatives/owners. Lenders release funds to the seller’s lawyers (in trust) for disbursement and the transaction is concluded.

Post Close

Implementation of post merger integration plan to ensure that the benefits and the synergies envisioned in the transaction are realized.