Blog

Trucking Industry: Selling to an ESOP in Today’s Market

November 28, 2016

Trucking companies need to carefully analyze if an ESOP is the right exit strategy given their fleet financing needs and future debt service needs.

According to the American Trucking Associations (ATA), the trucking industry is already experiencing a significant shortage in drivers and will need to hire roughly 89,000 drivers annually over the next ten years. With a current deficit of 48,000 drivers and turnover rates fluctuating between 80 and 100 percent, the industry also anticipates a continued softening in the freight environment.

In August 2016, ATA’s Chief Economist Bob Costello reported, “tonnage has decreased in four of the last five months and stood at the lowest level since October [through July 2016]. This prolonged softness is consistent with a supply chain that is clearing out elevated inventories. Looking ahead, expect a softer and uneven truck freight environment until the inventory correction is complete. With moderate economic growth expected, truck freight will improve the further along the inventory cycle we progress. ”

Privately held trucking companies, especially those with shareholders considering an exit in the next 1-3 years, are becoming more creative in their exit planning strategies in light of the industry’s current and expected conditions. More trucking companies like Smith Transport and Paschall Truck Lines are turning to Employee Stock Ownership Plans (ESOPs) as an exit strategy.

“For an industry like trucking that constantly combats high turnover and recruiting challenges, ESOPs may be the most overlooked employee benefit that could simultaneously enhance companies’ bottom lines, driver retention, and corporate cultures.”

An ESOP is essentially a qualified retirement plan that offers business owners an exit path while also creating wealth for the company’s employees. In addition to potential tax advantages for both selling shareholders and the companies themselves, research continues to show that ESOP-owned companies experience greater productivity and higher job growth than non-ESOP companies. For an industry like trucking that constantly combats high turnover and recruiting challenges, ESOPs may be the most overlooked employee benefit that could simultaneously enhance companies’ bottom lines, driver retention, and corporate cultures.

At the same time, ESOPs are not a fit for all companies. From a corporate finance perspective, trucking companies must carefully consider their fleet financing needs and the health of their balance sheet when contemplating selling to an ESOP. Many businesses elect to sell to an ESOP through a leveraged buyout in order to create liquidity for shareholders at the transaction’s closing. While there is an abundance of capital available in the marketplace, trucking companies have unique financing needs and need to be mindful of the impact a leveraged ESOP may have to the company’s borrowing capacity and debt service needs in the future. Trucking companies are strongly urged to undergo an in-depth feasibility analysis in order to assess if selling to an ESOP is the right exit strategy, especially given today’s market conditions.

Get our e-newsletter