Why There Could Be Acquisition Opportunities in Towing
When you think: Aftermarket acquisitions—towing likely doesn’t spring to mind. Yet the aftermarket-adjacent vehicle-hauling market could be ripe for acquisition growth opportunities, according to Rick Schwartz, co-founder and CEO of Schwartz Advisors. The investment case depends on putting trucks to work consistently. It also means developing customer relationships that support continued spending on equipment and skilled drivers.
Think about it: A collision can lead to several separate towing jobs. Diversifying into hauling construction and agricultural equipment could create services beyond roadside recovery. Schwartz’s assessment, shared on the latest podcast episode of SA Aftermarket Mobility Aftermarket Indicators, starts with how operators can build the capacity and customer base to serve it.
“The more tow trucks you have, the more chances you have to operate different towing business models. You can also sign up long-term contracts with customers.” That connection between equipment capacity and customer commitments helps explain Schwartz’s interest in consolidation. A larger operation has more resources to pursue work across several towing applications.
The Investment Continues After the Acquisition
Building capacity carries an ongoing equipment commitment. Schwartz describes towing as a business with relatively high capital spending as a percentage of sales, a consideration for investors accustomed to companies requiring fewer owned assets. As he explained, “You have to be comfortable with the fact that you’re going to continually be buying new trucks and equipment.”
The people operating those trucks belong in the same investment discussion. Schwartz cautioned against an acquisition strategy built around adding equipment while reducing the employees needed to use it, saying “that’s not going to work because you need to have skilled drivers driving.”
Schwartz sees room to eliminate unnecessary expenses, while emphasizing the strategic investments required to grow. An investor pursuing additional customers or services needs to account for the trucks and skilled drivers required to fulfill that work. Utilization then helps show whether the company is putting those resources to productive use.
That makes management’s understanding of the business particularly important. Schwartz advises investors to examine the metrics that make an individual operator successful and use those measures to guide expansion. The equipment requirements and staffing needs become part of evaluating how a company can deliver on the customer relationships it develops.
Assessing the Business Behind the Fleet
In towing, like many other acquisitions, the financial history needs to be understood alongside the operator’s services and customer commitments. Schwartz encourages owners to examine whether they have captured the revenue available from their work, including ancillary services for which they can legally bill. Contracts and repeat business help establish the customer relationships behind that revenue and give an owner evidence to support the company’s acquisition case.
The trucks’ service histories also belong in that assessment. Reviewing how the equipment has been maintained helps a buyer understand the assets it would acquire, complementing the financial records and book of business. Together, those details give the buyer a clearer picture of the operation it would be responsible for funding and managing.
Watch the latest episode of SA Aftermarket Mobility Insights above for all of Schwartz’s acquisition insights.