PE Assessment for investment in logistics tech company

Logistics Technology

Situation

On behalf of a private equity client, LoBue conducted a comprehensive operational and financial review of all company functions and processes, starting with sales management and going through billing and collections.  

Target is a vehicle relocation firm that includes movement of vehicles between vehicle manufacturers, finishers, dealerships, purchasers, and other parties, usually across relatively short distances.  

Recommendations
Results

High-level Recommendations:

  • Performed two-day on-site review with client and leadership team. Excellent discussion on forecast model structure identified strategic model flaws which we were able to work with Target CEO and CFO in corrected and providing a  
  • Hire COO who can manage scaling the organization, develop professional services and develop training programs for internal staff and drivers.
  • Hire a consultant who can work with management in determining the pricing strategy for the target software and the driver-away billing.
  • The target system is built on Salesforce’s force.com platform.  This is very scalable and secure.  Additional modules offered on this platform can be added and/or interfaces with the end goal of a fully integrated system.  For example, force.com offers a financial system that management believes would be satisfactory for them.
  • Insurance costs are a material cost.  Review alternatives to reduce premium costs and develop analysis to review root cause of all claims.
  • Risk that the current funding round is sufficient to support planned and not yet planned growth.
  • There is a risk that the independent contractor status will be disallowed, and all drivers will have to be employees.  See articles in Appendix.
  • There is a significant client concentration in 2020.
  • While challenging for a growing business, an opportunity exists to reduce corporate card transaction and factoring fees (both @3 percent).  Might look to replace factor with traditional bank financing.
  • Consider dynamic pricing, where depending upon traffic and client demand, pricing goes up or down (within a range).

Select Detailed Recommendations:

  • Contact Center staff will grow at a rate consistent with the number of drivers and overall business volume.  Currently, the number of contact support staff is estimated based on revenue.  The number of staff should be based on the activities (calls, email, follow-up, admin work, etc)
  • There is a risk that the independent contractor status will be disallowed, and all drivers will have to be employees.  See articles in Appendix.
  • Enhance current performance management system to meet not only short-term resource levels, but intermediate and long-term resource levels.
  • Position descriptions should be updated and/or developed to ensure all parties have a clear understanding of their key and secondary responsibilities.   Many of the new administrative positions are new and/or changing, requiring a clear understanding for all.
  • Focus on client-facing office and field positions, from sales through client customer support.  This should be well documented in flow chart and functions so clients (at different levels) don’t get caught in a place where not getting highest level of service and support.
  • Longer term Draiver may want to acquire some of the drive-away companies and/or brokers and utilize its technology to ramp up their margins.
  • Strategically Draiver may want to withhold the software from brokers, so they do not use the power of the AI engine against Draiver and its clients.
  • Identify what is necessary to acquire and grow the clients who are estimated to have significant annual revenue opportunity.  Consider adding Sales resource to focus on these.
  • Begin to explore introduction of software in other countries, India, Europe, etc.
  • Develop a formal client call plan and utilize CRM functionality to record client and prospect interaction.
  • Consider including a minimum number of trips (at a rate) or revenue target in client contracts.
  • Consider requiring EDI / API’s as a contract requirement to realize immediate productivity.
  • Perform root cause analysis on trip data receive during customer service calls and emails.  Develop on-going process for analysis and repair.
  • Think about value in driver and customer satisfaction programs.  This might include some type of rewards program for long-term, accident-free commitments (people love “stuff” like hats and shirts or driving-related such as driving gloves, seat pads, etc.).  This is an easy process through a third party.
  • Look at metric to understand driver utilization.  This would be hours driven over hours available to drive or could be over total hours target provided driver to work trips.  
  • Look for small, lower cost town in current state.  Utilize home and part-time staff who are looking for this type of position.

The initiative resulted in investment of $1.6M which then resulted in a 4.6x return in 18 months as the target was acquired by a strategic partner.