Trucking Acquisitions: A Cost Effective Alternative to Organic Growth

As many transportation business owners already know, starting a company from scratch is a labor of love. If you’ve already built a successful business, why go through all that time, money, and risk all over again when it comes time to grow? Expanding an existing company through acquisition can be a financially-rewarding alternative to standard organic growth.

Reduced Risk

Buying a trucking business that is already established significantly reduces some common risks associated with business start-ups. When you build a brand new company or expand your existing business into new territory, only time will tell whether the firm will be able to gain a client base, establish a good reputation, and ultimately generate a profit. By purchasing another business that has already accomplished these goals, you’re ahead of the game. Making acquisitions also reduces the risk of losing out to competition as your company absorbs potential competitors.

Faster Growth

Swift Trans, one of the largest trucking companies in the world, built its empire through acquisitions. After its first 20 years in business, the company had compiled a fleet of 800 trucks and had annual revenues of $25 million. Once Swift began purchasing other carriers such as Trans-Mex, it was able to grow to a fleet of 16,000 with more than $3 billion in annual revenue over the next 20 years. What’s the moral of the story? Organic growth can be steady, but acquisitions can lead to growth that is exponential.

Not only is growth through acquisition faster, but it can also be more predictable. For instance, perhaps a $20 million transportation company sets a goal of 50 percent growth through increased marketing. It can be difficult to accurately anticipate how many years or dollars will be needed to achieve those logistics. But by purchasing another trucking business valued at $10 million, the acquiring company will know exactly how much time and money it will take to reach its desired growth.

New Resources

From a strategic new location to a whole new fleet of vehicles, acquiring a trucking business also means acquiring resources that are already built into the new company’s valuation. Consider the economic concept of economies of scale. As the size of a company increases, so does output. With more output, the cost of doing business is almost always lowered. Larger companies are often able to take advantage of lower interest rates when it comes to debt financing and discounts when purchasing materials at a higher volume. Additional advantages of trucking mergers and acquisitions include new employees that already have licenses and certifications, locations that already come with loyal customers and vendors, and names and logos that already have clout in the marketplace.

 

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