Over the course of last few years, more than a few transportation business owners have watched the market value of their companies drop 10%, 20%, or even more. Despite this, your transportation business may actually be more valuable today than it was a few years ago, as surprising as that sounds.
Why is this the case? In order to understand why your company may be at the peak of its value, it’s important to be able to identify the types of buyers and examine how they go about valuing the assets of a transportation company.
There are generally two types of buyers in the market for a transportation business. The first is known as a financial buyer – he or she will evaluate the business based on the current financial health of a company and the potential for a rapid return on investment. The second type of buyer is a strategic buyer. This buyer will view the purchase of a company differently, taking into account the company’s growth potential, efficiency, ability to integrate into an existing company, current cash flow, and the prospects for new revenue streams.
In the eyes of financial buyers, your transportation business may be worth less today than it was a year ago. This makes sense – the financial performance of your company is, most likely, weaker this year than it has been in previous years. But a strategic buyer will have a different perspective, and your business’ value may now be higher than before as a result. There are several reasons strategic buyers may consider your company more valuable than financial buyers would.
One reason is basic supply and demand: as more companies leave the transportation industry, either through failures or acquisitions, the surviving companies’ value increases. With less competition, remaining companies have more opportunities to grow organically and increase weak revenue streams via newly-available clientele. This may describe your company’s current position, or it may be the reason strategic buyers see potential in acquiring your business.
Growing organically takes time and patience; acquisitions open new revenue streams relatively quickly with an immediate effect. This makes acquiring a business the more attractive option for strategic buyers, who are willing to pay a higher upfront cost to gain access to new sources of cash flow, in turn increasing the value of your transportation company when it’s put on the market.
For strategic buyers, the financial health of your company isn’t the only factor they take into consideration when interested in purchasing your transportation business. They will take a broader view of your company’s operations and measure its value based on many criteria.