Trucking Mergers & Acquisitions, Technology Integration, Merging Accounting and Your Acquisition Checklist
More and more, mergers and acquisitions in the trucking industry are becoming commonplace. These transactions involve a tremendous amount of legwork and research before they can be completed. Let's dive into what you need to know about these mergers. We'll cover the following:
- Why mergers and acquisitions are happening more often
- The various facets of what's needed to make a merger work
- How integrating technology and merging accounting are imperative to a successful transaction
- A final checklist for moving ahead with an acquisition
Why Are Trucking Mergers and Acquisitions Happening?
First, let's discuss why mergers and acquisitions have become more prevalent than ever in recent years. The trucking industry saw a boom in 2018 because of various economic factors. As such, many trucking companies found themselves at a high point for profitability since the turn of the century. However, market conditions have tapered off over the past few years. Some of this is due to a dip in the economy. The rest of it is has to do with the market resetting itself to more standard conditions. Let's take a look at what impact this has had on two different groups of carriers.
Smaller Companies Want to Sell
This impact has been especially great on smaller trucking operations. Whereas they may have turned profits in 2017 and 2018, the reality of 2019 and 2020 was very different. Trucking rates have gone down, and capacity for smaller carriers, such as less-than-truckload specialists, has dwindled. Meanwhile, insurance premiums have spiked. As such, these smaller carriers have found themselves ready to sell.
Larger Companies Want to Buy
Coincidentally, the larger trucking companies are actually clamoring to buy. Competition between companies for quality, experienced drivers is fierce. With general freight capacity also shrinking, larger companies are looking to add customers wherever they can. By acquiring smaller companies looking to sell, larger companies are achieving both of these goals. They're acquiring a veteran group of drivers without having to compete for their services. They're also absorbing the preexisting customers and relationships that the smaller company already has. This is a quick way to expand a business as well as create capacity where it may not have previously existed.
How Do Mergers and Acquisitions Work?
First, let's clarify that mergers and acquisitions, while similar, are different.
Mergers refer to when a company finds it would be beneficial to combine with another company of roughly equal assets and value. Essentially, it's a 50/50 partnership between two companies to form into one larger company. Usually, significant organizational restructuring happens with a merger. Rather than absorbing a company and its people, as is common in acquisitions, mergers deal with high-level people in equal positions across both companies. This takes careful planning and consideration to iron out how they will proceed.
Conversely, an acquisition involves one larger company absorbing a smaller company by taking a majority of ownership shares. This results in the smaller company's assets now falling under the parent company's umbrella. Generally, the purchasing company will retain its original name and branding. There's minimal organizational restructuring in an acquisition.
Whether you're considering a merger or an acquisition, these agreements happen in order to serve the best interests of all parties involved. There are a number of steps to take and things to consider before deciding to merge with or acquire another company. Do the financials make sense? What will the new leadership structure look like? What concessions will you need to make? The dynamics of the new company will likely be largely different.
Next, let's discuss how to integrate technology and accounting from two companies into one.
Technology and Accounting Integration
Two of the most important elements of a merger or acquisition are integrating technology and accounting from both companies. Tech and accounting are two of the most important parts of almost any business. Bringing two tech departments and two accounting departments into single, efficient entities will increase the productivity of your new company.
Let's begin by looking at technology integration.
Technology Integration Considerations
You'll want to consider a number of factors when determining which elements of technology to bring together and how when merging. Here are a few of these factors:
- Cost: You need to evaluate the cost of integration. Once you know the numbers, you can make better decisions about which elements to blend and which to leave separate.
- Synergy: Not every detail or program should be integrated. Determine which elements of technology will benefit from being molded together. Identify key programs that will improve the new overall parent company and implement them. Conversely, there's strength in recognizing which elements will remain stronger on their own. The goal is to provide a better overall product.
- Assessment: You need a baseline assessment to determine what needs to be integrated. This assessment should take even more details into consideration, such as:
- Leadership and employees
- Infrastructure and organization
- Company processes
- Overall financials
Accounting Integration Considerations
As with technology, there are many factors you need to evaluate when integrating accounting systems. Let's examine a few of them below.
- Terminology: You may find when merging two companies that your accounting "languages" don't match. For instance, one company may place more value on certain forms of revenue than another. Furthermore, that company may even arrive at recognizing what qualifies as revenue differently. Capitalization thresholds and overall methods may also vary.
- People: The people responsible for accounting in each company are accustomed to handling things in one particular way. When you're determining the best routes to help the company move forward, it's important to hear all sides and reach a consensus if possible.
- Information Technology: Whoever is spearheading the integration in accounting systems should work closely in tandem with an IT specialist. While the leader of integration can communicate precisely what they need, it's the IT professional who can ensure it goes smoothly.
One last piece of advice on integrations has to do with who is handling these transitions. If possible, it makes sense to bring in a third party to mediate these processes. It's common for the emotions of people at both companies to run high in an initial power struggle. Having a third party whose focus is solely on successful transition will smooth the process considerably.
There are many more items for a comprehensive checklist than can be provided for you here. However, let's look at some of the broadest things that you should include. Keep in mind that each of these categories have numerous subcategories that you'll also need to go through.
- Broad Form Planning: Planning is essential from the moment you know you're about to begin a merger or an acquisition. You'll want to start with big-picture planning. Look at human resources, assets, employees, physical space, and more. Meet with the highest-ranking officials in your company and the company being acquired. Communication will be key in making the transition smooth and successful.
- Detailed Planning: Next, you'll need to take each of your big-picture plans and transition into detailed planning for every item. Begin by putting someone qualified in charge of each project. As mentioned earlier, having a third party to mediate can be extremely helpful. Form teams to address each area on your list. The more detail and preparation, the better.
- Execution: Once you've built your detailed plans for each portion of your merger or acquisition, you'll need to execute them. You should have teams in place to take action on the plans they've already created cooperatively.
- Training and Integration: Earlier, we discussed integration of technology and accounting. Once you've completed this, all employees will need new training. It's your responsibility to make sure all employees understand the new processes and technology they'll be working with daily.
The End Is Only the Beginning
Mergers and acquisitions create perhaps the largest period of upheaval in a company's history, regardless of which side you're on. The process can be long, confusing, and exhausting. However, with careful planning and taking the appropriate steps, you can succeed. At the end of the transaction, you'll likely feel a great sense of relief.
Yet that ending is truly only the next beginning. Your new company organization is now complete. You'll embark on a new journey together, with employees and coworkers old and new. Together with partners you can embrace the future and create an environment of positivity and productivity. Then, you can all enjoy your new profitability.
This post was written by Matthew Zandstra. Matt has been working in transportation and logistics dispatch for the past six years, both as a broker and direct to drivers. He’s familiar with various facets of relationships, technical systems, pricing mechanics, and commodities.