Buying Out A Competitor

[Tow411]

In 2007 a member created a topic asking the question: Am I Asking TOO MUCH?

 

I am looking into buying out my only competitor who's primary business is AAA (90% AAA). I am looking at his #'s from the last year & his gross income is ok but am surprised at the low hook & mileage rate from AAA.

 

He as the owner is the only driver & has been making every call for quite a few years now, as I see it his businesses most valuable asset is him, as I run the #'s his business as is could not be profitable unless you as the owner run a majority of the calls as if you were to hire a driver all the profits would be gone. He is a young father, it sounds like he's getting burnt out & his family life/home time is minimal due to towing 24/7 I am open to ideas & options as I would like to buy this business for fair market value but am having a hard time finding it profitable unless I run all the calls myself which I too am a father of 2 young children & am trying to balance my work/family time as it is now.

 

The volume is good but the rates are too low for what I see on paper, I am looking for roughly $55-$60 hook & roughly $3-$3.50 per mile for this business to be of value & profitable to me, is this too much to expect AAA to pay, is anybody else close to that, maybe I'm missing something like added perks, am I? The value to me in this business is to open up many more calls as it seems everyone here has AAA, what if I do purchase the business & get a rate increase from AAA, whats to stop AAA from pulling my contract out from under me if another tow company opens up & offers basement rates in a year from now? What I have just paid for would be gone, do they offer a true contract that states they will not do that?

 

Looking for ideas or suggestions on how to make this work without me being on call 24/7.

 

The member that created this topic will certainly remember it and may jump in and provide some details on what direction it has taken over the past 10 years.

 

I B X said:

Like than man says, you pay your money, you take your chances.
I doubt AAA or any MC would give you the guarantee that any bank would be willing to make a loan on. Their contracts are for prices first and foremost. Don't expect them to give you the $$ that you know it will take to be profitable. As I have heard others say, you may be better off without a contract if your the only tower in the area. Then they might pay your retail rates.

 

auto rescue said:

On the same token think of buying the business then dumping 3a, members will then have to pay your rates and seek reimbursement.
How many others are towing on the island and would they be willing to fill in his shoes so to speak?

 

interstow said:

It is my understanding that the "contract" with AAA is not transferable when the business is sold?? Maybe someone that runs AAA can verify that??

Also, if he is the only competition...why pay him at all?? I know a little hard and calous...but why pay for something you will get anyway for no cost??

Offer him the chance to sell his inventory/equipment to you and offer him the chance to work for you on a set schedule. On your Island I'm sure you could both work 12 hour shifts and every other weekend. This would get him out from under his business, give him an income and time off for both of you and your families and working a normal routine

schedule that you can both plan on.

 

Original Poster said:

John, that was a thought but whats to stop someone else from buying a tow truck 3 months after I buy his business & contracting with AAA? At this point the 2 of us are the only trucks here but that can change at any time.

 

auto rescue said:

I guess that's why I was curious of what the potential for someone else opening up, as you noted it's a grueling life style.
I kind of like the suggestion by interstow also.

 

Original Poster said:

JB, I do have an auto repair shop but refuse to operate the towing at a lost leader, the shop with 4 tech's is typically scheduled out about 2 weeks year round so bringing in more work will only bury our existing customer base.
As far as another company coming in and opening up or someone else buying his existing business it would be profitable but only if the owner was running 90% of the calls himself 24/7 with minimal overhead as the current owner is. Thank you for the kind words

IBX, the island is about 30 miles from one end to the other & has around 4,000 residents with no bridge, ferry is the only access to the mainland, the top speed limit is 40 mph & fuel is currently above $4 per gallon, hard to make it being paid by the mile, also everything else here is expensive as it has to be ferried in, groceries, services, land & property taxes are steep.
Steve, I hear you, problem is I think he's to proud to give it up, aren't we all? Hes built a good income for himself but at what cost, he's the most valuable part of the business as I see it.
Heck it may sell for what hes asking but the new owner would have to be a workaholic with no need for family or personal time, we'll see, I would like to make it work for both of us just dont see it worth what I think he's wanting.......

 

interstow said:

Whats he asking??? How much is for equipment and how much is his goodwill?? Are you sure that AAA will stay with you??

 

cdntowguy said:

Your competitor is running as a "broker" or "subcontractor" with AAA.
I am in the same position with CAA here. The situation you describe, is very much the same as I am in here.
We all make a living, some of us better than others.

The contract is not transferable from company to company,or to a new owner, but the club will consider the change.-Check with them first.
I believe the true value of his company is really, only the value of his equipment and maybe what the remaining 10% business brings in. I would think that 10% is garage work he picked up through dealing with garages via AAA members.

Consider his business the same way you would look at an broker/operator with a large company. He owns a spot with two trucks in a huge fleet.

Steve

 

Original Poster said:

Steve, not sure on the asking price yet but I'm having a hard time justifying much over equipment value as like previously mentioned AAA has a majority of the work on island but the contract is more for rates & not any guarantee that they wont use someone else in a few months, it would be worth more if AAA would agree to a timed contract, the trucks are a light duty wrecker with less than 100,000, a light duty flatbed with 255,000 miles & a ranger service truck.

 

fairway said:

I don't think they will give you any type of guarantee or timed contract. If he is the sole provider for AAA and is to sell out to you, I don't think AAA would have a problem issuing you a new contract, they might even raise your rates if you negotiate but you can bet any amount of money as soon as a lowballer comes in, your out. (until his truck breaks anyway.) You're in a good spot as being only two companies on the island. If it was me, I would probably have him sign some type of a non-compete agreement and then try to negotiate higher rates, if AAA won't budge then drop them and service all customers as retail (just hand out the reimbursement form with every tow). What's AAA going to do? Bring in a fleet truck?

 

Original Poster said:

Al, wondering if he would have better leverage than me to negotiate higher rates, hate to make the deal on assuming better rates ...., then on the other hand if he negotiates better rates why would he want to sell??? Too many variables & unknowns to spend a bunch of dough on blue sky ......
I appreciate all your inputs.

 

Reliable Towing said:

it sounds like a pretty small area, stated 30 miles with limited customers (4,000).
I wouldn't be to concerned about competition moving on the island.
What does property go for and how much commercial is available?
Offer to buy his equipment, lot & whatever he has for its value and like previously stated have him sign a non-compete.
I would think a MC would work closer with you on your terms not his previous terms.
AAA won't send a truck on the ferry for a lockout or jump start or would they
Best of luck to you with the venture

 

I B X said:

Last thing, what does his equipment look like compared to yours. Is it run down or well maintained? If it's the former, you might be money ahead to not buy him out. If his equipment is from the last century, and looks like it itself is going to need a tow, you can assume that he's just getting by, and in time he will phase himself out.

 

Original Poster said:

Steven, the only competition I would have to worry about is the single truck/owner operator that has no life & will tow for low rates.
Property is priced outragious & he has no property to offer, only trucks & "contracts"(which as I see it are worth nothing due to the low rates) and no the ferry ride will cost you over $50 & is 1.5hrs one way so it is not feasible to send a truck from the mainland even for a tow let alone a lockout.
The equipment is fair, nothing more, will need replacing within a few years.

 

fairway said:

AAA contracts are not transferable if the original contractor was to sell. A new contract would have to be signed

 

eagletow said:

Truthfully ,Why would you want to spend your money ? Is it just to eliminate competition? The way I see it is you will get his business soon enough without paying for it .As for AAA you might want to look into an auxiliary arrangement with AAA ,this way you get the calls and they pay your rate no negoations needed .I wouldn't sign a contract .The main trouble is going to be someone with the gold card who wants to go 100 miles and you sit on a ferry for 3 hours without getting paid for it .
Now if this guy is going to sell ,do you need his equipment ? Yours look pretty nice now ,can you handle the extra calls without his ?Naw I think you'd be better off without it .He has nothing to sell but his trucks period .You say contracts too ,he can't sell his contracts .With out him you,being the "only game in town " all his "contracts "will revert to you anyways .
Brother in this situation you might be better off sitting on your hands and waiting it out .

 

Original Poster said:

Yep, that's an option also, would be good for my existing business but seems like there is always someone who will do it cheaper, ain't our industry wonderful........

 

LAMB Towing said:

If I were on an island with only one competitor, I'd buy him out and close the business. Even if it meant giving a little more than fair market value for what he's got. Sell whatever trucks you don't need on eBay and get them off the island. If AAA has that many customers on the island, they will have no choice but to come to your terms. I'm not on an island, I'm in the middle of Oklahoma. But nobody in my area wants to mess with AAA because they pay $20 hookup & $2.40/mile with the first 5 miles for free. Only one company here will sign with them, and his truck is an old worn out piece of junk. I do everything that he can't when he is busy or his truck is broken down. They have no choice but to call me and come to my terms. I don't feel that I am being unfair to them. I operate brand new equipment, provide their members with excellent service, and I give them very fair and realistic ETAs (usually 20 minutes or less). Cash calls don't get priority over motor clubs, we try to do all calls in the order that they are received.