Tuesday, September 26, 2023
By Ken Lucci

Q&As About M&AWhile there has been plenty of news about massive acquisitions taking place in the luxury ground transportation industry and lots of talk about global networks for sale, it is important to consider what operators think about acquiring other companies and what they look for when buying businesses. I spoke to three company owners who are still intimately involved in the day-to-day activity of their steadily growing midsize and large operations to get their feedback on M&A.

Aggressive Activity in Arizona

Q&As About M&A Joseph Trobunella
President & CEO
Phoenix, Ariz.

I recently met Joseph Trobunella, owner of ­AZLimo.com, when I was teaching a workshop on Growing Your Business Organically for the Arizona Limousine Association this past June. After my presentation, he introduced himself and I learned more about him and his impressive operation. He has more than 14 years in the business, and is a very aggressive player in his market.

Acquisitions have been on his mind for a while, but with a long-term vision. As he is actively looking for selective companies to buy as a market entry in other geographic areas, the entire subject of acquiring another business has made him first look inward at his Phoenix-based operation.

Q. Are you interested in buying other ­chauffeured ground transportation companies?
Absolutely, we are firmly in the buyer column—taking aggressive steps by preparing AZLimo.com to purchase companies within our market and other geographic territories.

Q. When you say aggressive steps, what do you mean?
We have grown tremendously in recent years, and over the next 12 months, our focus is on expanding our fleet and enhancing our existing operation in preparation for more organic growth and strategic acquisitions. Recently, we purchased more large-capacity passenger vehicles, including motorcoaches. We now have Grech 40-passenger executive coaches and new Volvo motorcoaches. In June, we bought a commercial property, which we are renovating that will allow us to double in size over the next few years without moving again. Owning makes more sense than renting.

Also, we have made a commitment to implement ongoing chauffeur training and customer service training by bringing in a third-party firm and have implemented quality assurance technology to track our performance on every ride. We are also adding outside salespeople to maximize revenue from existing and new customers.

On the financial side, we just hired an internal accounting person to work with our CPA firm to manage receivables, payables, payroll, and financial statements. Our banking relationships are very strong, and we want to make sure that when we are asked for financial data we have it on the spot.

All this effort is putting us in a strong position to grow in our own region both organically and through acquisitions. Having our act together at home will make it much easier to operate offices and move fleet in other markets.

Takeaways from Trobunella:
• Business is a marathon not a sprint, so be prepared before you buy. Strengthen your staff and core competencies.
• Increase your larger capacity fleet capability in your own region to share with satellite offices you may acquire.
• Be profitable and have your financial house in order first before you even consider buying.
• Have current financials and strong relationships with a CPA and local banking enterprises.

Knowing the Numbers in New Jersey

Q&As About M&A Robert Bellagamba
President & CEO
Concorde Worldwide
Freehold, N.J.

I have known Robert Bellagamba from Concorde Worldwide for more than 10 years. We met when we were both pinch-hitting for the late Tom Mazza at a training workshop in Miami when he was too ill to run the sessions. As soon as I heard Bellagamba talk about financial metrics, it was clear that he had a passion for numbers and a firm grasp on the financial aspects of his business. Bellagamba’s company handles corporate transportation and group moves globally, with a keen eye on operational efficiency and profitably. In full disclosure, I recently performed a series of professional chauffeur training and customer service workshops at Concorde’s headquarters, so I was privileged to spend a few days inside this impressive operation. Bellagamba, who has 30+ years of experience shared that Concorde has been quietly acquiring companies for several years.

Q. Are you interested in buying other ­chauffeured ground transportation companies?
Yes, always. While we are not regularly out soliciting companies to sell to us, in the past few years, we purchased several local and midsize regional competitors. We will continue to look at all opportunities that present themselves, and if they make sense, we will pursue them aggressively.

Q. What does “If they make sense” mean to you?
First, their retail pricing structure needs to be on par with ours. If they are not making money on rides and our prices are much higher than their customers are accustomed to, it’s not a win-win deal. When we buy, we want a smooth transition with existing customers; the last thing we want to do is raise rates out of the gate and lose them. Secondly, the business has to fit the type of services we currently provide. We prefer “fold-in” acquisitions with similar customer types that can benefit from Concorde’s larger infrastructure.

What also has to make sense is the culture of the people we acquire. When possible, we like to bring on their chauffeurs and seasoned internal staff, with a culture consistent with ours. For example, if employees and customers are used to speaking only to the owner, and his personality has been driving the business instead of a corporate structure and brand name in the market, it is a tough slog for everyone. The best companies to buy are those whose customers know the brand name and the service attributes—not the owner’s first name. The relationships and confidence have to be mainly with the company brand and not a particular person.

Q&As About M&AQ. What is the best advice you could give sellers?
I advise sellers who want to get a decent price to have their financial records in order before they plan to sell—meaning, price rides properly and have professionally prepared financial statements with no fudging. I look for tax returns compiled and filed by a CPA, and put more stock in accuracy and always tie them back to internal financials and bank statements before I make an offer. Second, be emotionally ready to sell your business. Don’t call buyers when you are having a bad day and start talking about selling, only to regret it when business gets better. That is non-productive. If you are thinking of selling, weigh all your options, consider what you will do next, and sell when you are prepared and ready.

Q. As a buyer, would you pay all cash for a ­company?
That’s an interesting question with a two-part answer: When there are fleet vehicles involved in the purchase, then yes, we would consider buying part of the fleet and paying cash—but only if we need those vehicles to provide the service. In most cases, we handle the fleet part separately, and in many cases, the sellers like to sell fleet off to third parties.

As far as paying cash upfront for a “business”—meaning the intangible assets like customer lists, contracted accounts, etc.—no, we don’t pay cash in 95 percent of the cases. There is just too much risk in our industry to pay cash upfront for a business at a price that most sellers would agree to. It isn’t financially feasible when it comes to buying a revenue stream because there is no guarantee, even if contracts are in writing with customers. Unfortunately, there are holes in even the best-written contracts and future revenue cannot be guaranteed by anyone.

Paying upfront cash for past revenue from a customer list is worth only pennies on the dollar. However, on what I call an “earn out/prove out” basis, we can usually pay sellers what they are asking over a period of time that works for everyone concerned. Win-win deals are all we try to do, and paying a seller a nice monthly check over a defined earn-out period is a win for all concerned.

Takeaways from Bellagamba:
• Make sure there is retail price parity on trips with the company you are acquiring.
• “Fold-in” acquisitions fit your operation and have similar services to what you provide.
• Creating a cohesive culture is a must when combining companies and personnel.
• Buy companies that customers know by their brand name, not their previous owner.
• Sellers must have their financial house in order and be emotionally ready to sell.
• Expect an earn-out structure rather than a chunk of cash at sale to create a win-win.

Future Focused in Florida

Q&As About M&ASami Elotmani
International Vice President
Global Partnerships
Destination MCO
Orlando, Fla.

When I recently visited the Orlando Airport, I saw three minicoaches with Destination MCO emblazoned on the side. Then, I drove to my hotel and their SUVs were out front. It was obvious that they were among the big players in their market with their shining black cars.

I have known Elotmani for several years and listened to him speak at industry events. He is known for his sharp intellect and pensive demeanor. Long after I sold Ambassador Limousine in Tampa Bay, I was pleased to hear that Destination MCO purchased Network Transportation Solutions in that market, expanding their reach from Central Florida all the way down the west coast of the state. Recently, Elotmani was kind enough to share some of his thoughts about acquisitions based on what he’s gleaned from his 16+ years in the business.

Q. Are you interested in buying more chauffeured transportation companies?
Yes, we are always on the lookout for a good opportunity, provided it fits within our company’s long-term strategic plan. We wanted to expand to the Tampa area to meet the needs of our existing customers, so acquiring Network Transportation Solutions made great sense.

Q&As About M&AQ. What is the best advice you could give buyers or sellers?
We all make decisions emotionally and THEN justify them rationally. Be aware of that fact and let the numbers of the business drive the conversation, not your gut feelings. Doing that, along with hiring an M&A professional, should help you make the right decisions.

Q. As a buyer, would you pay all cash for a company?
The short answer is no—however, how much you pay upfront depends on what you are buying. Paying for fleet upfront is different from paying for the book of business, which requires a lot more work on your end to project its long-term value.

Takeaways from Elotmani:
• Acquire what fits in to your long-term strategic plan.
• Buy by the numbers not on emotions, and let the financials speak for themselves.
• Hire an M&A advisor and other professionals to assist you with ­acquisitions.

For more information about the acquisition process, email me at klucci@drivingtransactions.com and I will forward you my latest e-book, The Most Important Q and A about M and A, at no cost or obligation.

Ken Lucci is a consultant to the chauffeured transportation and hospitality industries. He can be reached at klucci@drivingyourincome.com.