Courier company due diligence

Once a letter of intent is signed, due diligence on a courier company is about checking what the seller has said against the records. The records that matter are the dispatch and invoice history, the driver contracts and payments, the fleet’s safety and registration record, and the registry searches for claims on the vehicles. A courier company can look fine on its financial statements while the account book rests on one person’s relationships, or while the driver arrangements would not hold up if challenged. This guide sets out the documents to request, the searches to run and what each kind of finding means for the deal.

Match the account book to the records

Ask for invoices and dispatch records by customer for every month of the period you are relying on, and reconcile them with the revenue in the financial statements. Check the largest accounts first. Confirm which are on standing pickup schedules and which are booked call by call, and whether any account has reduced volume lately. Where the seller cannot produce route or dispatch records for the period relied on, the account book cannot be verified, and that is a finding in itself. Compare what you see with the glossary entry on customer concentration. Call a sample of the larger accounts, with the seller’s agreement and under a confidentiality agreement, to confirm the relationship and how the account is booked. Ask what would make the customer switch providers, and whether anything in the arrangement depends on the owner personally.

Test driver status against the facts

The Canada Revenue Agency says that, generally, an employee works under the direction and control of the individual or business who hired them, that a self-employed worker is not under the direction or control of the payer, and that all of the facts, including the actual terms and conditions of the work, determine status, not just intention. Request every driver contract, the pay records, and whether drivers use their own vehicles or the company’s. Ask whether any employment standards complaint, tax ruling request or audit is open. An open matter is something to price or to cover through the agreement, and a lawyer should advise how.

Pull the safety and registration record

Transport Canada says provincial and territorial regulations govern the operation of the commercial bus and truck industry apart from the rules it sets for federally regulated extra-provincial carriers, and that the federal government only has authority over extra-provincial truck and bus carriers that carry goods or passengers across a provincial or international boundary. Ontario’s commercial vehicle operator’s registration (CVOR) program monitors and evaluates operators’ safety records, and a CVOR abstract is a summary of a carrier’s or driver’s safety performance, including collisions, convictions and inspections. Ask what the equivalent is in each other province where the company operates. Ask the seller which registrations apply to each vehicle, obtain the carrier record where the province provides one, and read it for patterns before treating any single entry as decisive.

Search the fleet for claims

Vehicles that look owned may be financed or leased. Ask your lawyer which provincial registries to search for security interests against the company’s name and the vehicles, in each province where it is registered or operates. Compare the results with the debts disclosed in the financial statements, and ask your lawyer to confirm the exact name in which each vehicle is registered. A registration against a vehicle that does not appear in the disclosed debts is a question for the seller, and the agreement should require its release at closing or provide for payout from the proceeds. Ask for copies of any lease or financing papers on the fleet, and check whether the lessor or lender must consent to a sale. Also confirm that insurance covers the vehicles and drivers as described, and ask for the claims history.

Findings that need a hard look

Three findings deserve a hard look. First, an account base that proves personally loyal to the seller. Second, a driver status complaint or investigation already underway. Third, no route or dispatch documentation, which leaves the book unverifiable. Each has a different remedy. A loyalty finding may call for a longer seller transition or a price tied to retained accounts. A status finding calls for legal advice. Missing records may mean the price has to assume the worst case, or that you walk away. Whatever you find, write it down, give the seller a chance to respond, and have the agreement address it through a price change, a holdback, a specific indemnity or a closing condition, as your lawyer advises. Do not leave a known problem to be sorted out after closing.

• Invoices and dispatch records by customer, reconciled to the financial statements
• Every driver contract, pay record and a statement of whose vehicle is used
• The fleet’s registrations and the carrier safety record where the province provides one
• Personal property registry searches on the company and the vehicles in each relevant province
• Written disclosure of any open employment, tax or safety matter