Value vs Price

How does a potential seller of a transport or logistics business calculate the value of their business?

and conversely :

How does a potential purchaser value a transport or logistics business?

There is no short or easy answer to these two questions, nor is there a set or fixed method by which the transport and logistics industry operates in terms of assessing and valuing logistics business.

There does exist however, precedents of valuation methods for past logistics business sale transactions across each transport and logistics industry service mode.

In relation to the sale of a transport or logistics business, it is important to note that price is what is ultimately paid and value is what a seller initially hopes to achieve.

Methods of Assessing the Value of a Transport or Logistics Business

To effectively price a logistics business goodwill and assets, it is important to understand the differences between a “business appraisal”, a “business valuation” and a “goodwill and asset asking price”.

A “business appraisal” involves a macro level assessment of the business structure, market position and financials, which then blends into a mix to then apply an accepted formula on which one could reasonably assume could be an indicative value for the business and it’s assets.

A “business valuation” is a more formal, detailed and creditable method of assessing the value of the business goodwill and assets and involves more rigorous testing and checking of the items assessed within the “business appraisal” process and is required by nature to be co-ordinated independently by either a qualified business valuer, an industry expert, or a qualified external accountant.  When considering this method of assessing a business value, care should be taken in our opinion to ensure that the independent person appointed to the valuation process, is professionally qualified and experienced in this area, in addition to having direct knowledge of the logistics industry.

A “goodwill and asset asking price” is a figure set by an owner and/or their business broker or external accountant that they believe warrants “pitching” to the market – this value need not necessarily be formula based and it can differ to an “appraisal” or “valuation” figure, but should not be priced or structured in a way that prevents initial interest from potential purchasers. As with any method of pricing of the business goodwill and assets, this figure will be best served flowing from a industry recognised and proven formula, otherwise the seller and or professional advisor to the business may be seen to lack creditability, which may ultimately harm any sale process that follows.

It is important to note that for self employment/subcontractor work that goodwill should not be assumed as being warranted to pay unless goodwill is specifically allowed to be transferred an assignable agreement or contract with the party providing such work. In any case legal advice should be sought in this regard.

Working Capital

Working capital can be described as the net short term business trading position – ie. current assets less current liabilities – it is important for both the potential seller and potential purchaser of a logistics business to understand the level of working capital required to operate the business and then the treatment or isolation of this item within any negotiation in relation to the value of the business goodwill and assets.

Some Useful Terms

Add-backs

The term used to describe costs that are incurred within an existing transport or logistics business, that may not be costs that would be incurred by a new owner. Traditionally, these are added on top of taxable net profit for purposes of analysing the business’ financial performance.

EBIT

Earnings Before Interest and Tax

Net Taxable profit (ie. before tax), then adding back interest and any finance costs

EBITDA

Earnings Before Interest, Tax and Depreciation

EBIT, adding back asset depreciation and goodwill amortisation

Some Methods of Business Appraisal and Valuations for Privately Owned Transport or Logistics Businesses

• Industry Multipliers/”Rules of Thumb”
• Return on Investment (“ROI”)
• Disounted Cashflow
• Super Profits
• Asset Method

Disclaimer

The information provided within this website should be used as a guide only and is not exhaustive or complete in terms of content. We urge all potential sellers and purchasers of transport or logistics businesses to seek professional advice to assist them in the area pricing/appraising/valuing a logistics business and moving forward with any potential sales or acquisition/purchase process.

For further information in relation to pricing a logistics business, please refer to our FAQ page. If you need further assistance, please select 'Refer Me To A Professional Advisor' on our Contact Us form or call us on 1300 600 768.