COVID and the shutdown of the economy made 2020 a very turbulent year, especially for smaller carriers in the trucking industry.
That turbulence, couple with plant shutdowns, rising liability insurance and medical expenses that have hit the industry, collided to really pinched a lot of small carriers. And so, while there’s a lot of talk from other M&A experts about the opportunity that distressed companies present — mainly in the form of discounts — for Paladin Capital CEO Bill Prevost, it was a problem. It shrunk his deal pipeline because he’s looking for companies of a certain fitness. So the market troubles had, for Prevost, an un-helpful effect.
“It definitely stressed a lot of small carriers,” says Prevost. “And we saw a lot of opportunities, but mostly the opportunities we saw are what we call distressed. And that doesn’t really fit our purchase model.”
Prevost says Paladin likes to take a privately owned business, known for its quality and success, with a recognizable brand, and find that owner who’s selling for the right reason. And that’s not because he’s distressed or panicked, it’s just the calendar says it’s time to take equity off the table and monetize what’s been built.
That’s because Paladin wants to buy good businesses and just let them run. The firm, in exchange, aims to bring strength from the executive suite in terms of financing, insurance, purchase, procurement, but doesn’t want to mess with the DNA that made the business successful.
Paladin looks to buy businesses that can be transitioned into an ESOP. But that can’t always happen. Sometimes that’s because the seller doesn’t like the valuation, but other times it’s for financial reasons that have everything to do with how the company was run in the years leading up to the exit. The economic impact of the COVID shutdown last year led to more contacts, but largely from companies Paladin ultimately could not pursue.
“The pipeline did expand, but the quality didn’t improve proportionately,” he says.
Prevost spoke on the Smart Business Dealmakers Podcast about what the 2020 market looked like for his firm, which focuses on acquisition in the trucking industry, and what businesses interested in selling to an ESOP need to do to prepare.
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