When it comes to buying out a struggling competitor, many transportation business owners have the right idea but the wrong approach. Owners often plan to wait out a bleeding business with the intention of taking it away from their competitor piece by piece. While this may seem like the financially prudent path, here’s why it may actually cost you more in the long run.
There’s always the possibility that if you don’t buy a business, someone else will. While you’re waiting for your competitor to close up shop, it’s the perfect opportunity for a well-funded investor to swoop in and purchase the entire ailing company. Given the choice of a looming liquidation sale or the possibility to walk away with money in his pockets, a struggling business owner will nearly always choose the latter. This can create big problems for your own business over the next 5-10 years, especially if the buyer is intent on growing the new company. Instead of snuffing out your competition, you may have just fueled it.
Even if you were not formerly considering buying a business in Houston, the chance to merge with or acquire a competitor may be too good of an opportunity to pass up. It’s important to consider the big picture in this scenario. Not only do you stand to gain the assets and cash flow of this business, but you also have the ability to eliminate your competition. By merging, you can transform your struggling competitor into a lifetime ambassador of your business. There may be other charter bus companies for sale or school bus companies for sale down the road, but in regards to market share, they may not provide the same synergies as a competing business.
Acquiring any transportation business comes with liabilities, including financing, transaction costs, and a certain level of risk. But passing up an opportunity is risky as well. Without knowing how rates or the market will behave in the future, it’s impractical to assume buying a business – or pieces of the business – will be possible when it finally does become available. Often times, the only way to determine whether a business will be a good fit is to do your research and make an offer. By merging with an already established business, you may be able to weed out the competition so your company can flourish.
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Charles Tenney is managing partner of The Tenney Group, a firm of industry specialized business brokers and transaction advisors exclusively focused on transportation business sales, acquisitions, and business valuations.
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