Keep on Truckin’: Thorough Due Diligence Expands Fleet Repair Business

Background

Dickinson Fleet Services (Dickinson) was founded in 1997 with three garages and approximately 25 technicians. Today it’s one of the largest independent fleet maintenance and management companies in the U.S., servicing fleet customers at 17 maintenance facilities and offering mobile on-site maintenance and repair services for light, medium, and heavy-duty trucks and trailers.

The Challenge

In order to diversify and expand into high-growth emergency mobile repair services, Dickinson, along with its private-equity majority shareholder, sought to acquire Interstate Truck Center, Inc. (Interstate). Interstate was founded in 2010 and remained privately held through a decade of significant growth. In fact, Interstate grew so quickly that it wasn’t able to implement the right accounting processes and scrambled to accurately track revenues and related costs, making it difficult for Dickinson to reliably assess the profitability and risk. The deal also would not include an investment banker to help negotiate and navigate the deal complexities.

The Solution

Katz, Sapper & Miller worked on behalf of Dickinson to review Interstate’s operations and financials. Because of Interstate’s rapid growth and limited accounting function, the KSM team sifted through large amounts of raw operational data to analyze the quality of earnings while simultaneously prioritizing speed, clarity, and communication.

The KSM team removed the uncertainty and noise to provide Dickinson with an accurate view of Interstate’s financial picture. This included the following:

• Normalized earnings for core business operations
• Identified actual earnings before interest, taxes, depreciation, and amortization (EBITDA)
• Developed an understanding of normal debt
• Confidently set a net working capital target
• Evaluated tax exposure (federal tax, state tax, and sales tax) and identified opportunities for tax savings
• Created optimal tax structure for the deal
• Conducted purchase accounting
• Performed a cash proof of revenues and expenses to validate historical results
• Quantified pro forma synergies and growth to help lenders and other parties understand the potential accretive growth

The KSM team helped Interstate’s executives better understand the structure of the deal and explained Interstate’s unique operations to lenders. KSM assembled a quality of earnings report that got lenders comfortable with financing the transaction. Extensive due diligence efforts also led to revisions in the letter of intent that better managed any risks of tax exposure at Interstate and required a more effective earnout provision to keep the Interstate executives involved in the integration of their operations into the Dickinson organization.

After the deal closed, KSM’s post-transaction advisory team worked closely with Interstate and their new accounting team to ensure the purchase price accounting was recorded and that the net working capital position was understood. This all happened in 45 days, enabling Dickinson to quickly include Interstate as part of their portfolio of operations.

The Result

KSM’s thorough and insightful due diligence work on the target company enabled Dickinson to clearly see the risk and opportunity and to complete the acquisition of Interstate. The combined business is now the largest mobile fleet maintenance provider in North America, able to provide its customers with an increased breadth of services, including scheduled and unscheduled maintenance for light, medium, and heavy-duty trucks and trailers. The business continues to grow and is outperforming historical results.

Our KSM team did an extraordinary job of clarifying for us the value that was waiting to be unlocked at Interstate and the risks that we needed to manage in the acquisition. This acquisition solidified our position as the leading mobile maintenance provider for medium and heavy-duty trucks and trailers in North America, and it wouldn’t have been possible without the attention to detail, thoughtful insights, and creative problem-solving skills that KSM delivered.

– Asad Khan, executive director of Dickinson Fleet Services, LLC

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